In Sunday’s New York Times, noted behavioral finance expert Richard Thaler, a professor at the University of Chicago’s Booth School of Business, lays out some simple ways to attack the looming crisis for people who aren't saving enough for retirement. Thaler’s formula for success: setting people up for success with proper plan features or choice architecture so that they're more likely to make good decisions.
Improving coverage is the first step, says Thaler, citing the federal government’s auto IRA plan (California has enacted a similar one that's pending), followed by auto-enrollment and auto-escalation. It seems simple and logical, but not all plans incorporate them. Thaler notes that the “Save More Tomorrow” scheme he and UCLA Professor Shlomo Benartzi created, in which participants sign up today to increase their deferrals later when they get pay raises, is currently used by 4 million participants and increases savings by an estimated $7 billion per year.
The next steps? Participants should push their employers to improve their retirement plans — and employers should get busy.
