The Right Nudge Might Push Americans Into Secure Retirements

CHICAGO -- An email nudge works far better than a tax incentive when it comes to encouraging people to save more for retirement, a behavioral expert said at today's Retirement Industry Conference.

Shlomo Benartzi, behavioral economist at UCLA, discussed his findings as he helped develop the program “Save More Tomorrow.” The program is credited with boosting the savings rates of more than 15 million Americans.

Researchers looked at the return on investment of various methods of encouraging people to save more for retirement. Tax incentives proved to be the least effective, with an average of $1.24 saved for every dollar of tax incentive, Benartzi said. Matching contibutions were a little higher, at $5.59 saved for every dollar of match. But financial education proved to have a stronger ROI, with $14.58 saved for every dollar spent on education.

Sending retirement plan participants an email nudge encouraging them to save more generated a whopping $1,600 for every dollar spent.

The Save More Tomorrow program encouraged workers to increase their retirement savings over time by having them invest their future salary increases toward retirement.

"Employees like this because they save more as they make more money," he said.

Also at today's Retirement Industry Conference, a panel of retirement plan sponsors described their responsibilities and challenges of helping their companies ' respective employees prepare for retirement.

Serving the needs of a diverse workforce were cited as challenges by Kris Blumka of the law firm Schiff Harden as well as by Lisa DeSanto of Crate and Barrel. DeSanto added that her job is also challenged by having to communicate with employees who work a variety of shifts and in locations around the nation. She said her company has begun holding benefits fairs in its warehouses as well as in its corporate office.

Preventing or discouraging employees from withdrawing their retirement funds too soon was another concern. Blumka said many workers want to start taking money out of their accounts when they reach age 59 ½, while DeSanto said workers frequently need to borrow from their retirement accounts to pay for unexpected expenses.

Despite the challenges, the plan sponsors said they saw automatic enrollment in retirement plans as a big positive, with automatic enrollment leading to 90 percent of employees participating in plans.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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