How to nudge your way to a better retirement

Ted Toal, CFP®
RCS Financial Planning
(410) 224-0097

Everyone wants a financially secure retirement. So why aren’t more people saving like they should? Behavioral research has begun to shed light on what keeps us from acting in our own best interest, and has revealed some strategies to help “nudge” us in the right direction.

Behavioral “nudges” are mechanisms to encourage people to make smarter decisions. Governments, companies, and nonprofits are increasingly implementing nudges to help people improve their own lives.


For example, everyone knows they should eat their vegetables, but are more likely to make their way to the bakery section. The grocery store Pay and Save placed green arrows on their store floors leading to the produce aisles, and found that customers followed the arrows nine times out of ten. Their sales of fruits and vegetables skyrocketed.1


Another example: when you get your driver’s license in the U.S., you decide if you want to become an organ donor. On average, just 15% of people in the U.S. sign up as organ donors. But in Austria, people are automatically “opted-in”, and can opt-out if they wish. Because of this “nudge,” 90% of Austrians are donors – helping to save countless lives.2


So how can we use the science of behavioral nudging to better our own retirement planning? Here are a few examples.


Visualize your retirement

Take a moment to imagine your ideal retirement. How would you like to enjoy your new freedom? Is there an amazing travel destination you always wanted to explore? New hobbies or sports you want to try? Volunteer activities or lifelong learning opportunities you want to partake in? It turns out that simply the act of envisioning your future can help “nudge” you toward more retirement savings. Here’s one strategy: create a photo album of places you want to travel to or things you want to do in retirement. You will likely find that it will inspire you to get more serious about your retirement planning. In one study, survey participants who were asked to visualize their retirement years recommended saving 31% more per paycheck in a retirement savings plan.3


Automate your savings

As the examples above illustrate, if people are required to “opt-in” to a plan, even if this plan clearly benefits them in the long-term, inertia often sets in. Meanwhile, if they are required to “opt-out” not to participate in the plan, they are far more likely engage in the plan. Employers have used this insight to nudge their employees toward higher retirement savings. When employees are offered a plan with voluntary participation, even with other incentives like contribution matching, about 59% join. But when they are automatically enrolled in a plan, with an option to opt-out, participation rises to 86%.4


Making your 401(k) contributions automatic can help you bolster your savings without even thinking about it. Similarly, setting up an automatic savings plan can help your retirement preparation by moving money from your checking account and putting it into a savings or other account designated for your retirement.


Keep it simple

When preparing for retirement, it is easy to be overwhelmed by the complexity of too many choices, which can lead to “paralysis by analysis.” A great example of this phenomenon was when psychologists Sheena Iyengar and Mark Lepper from Columbia and Stanford University studied how people buy jams at the grocery store. On one day at the store, customers saw a display table with 24 different kinds of jams. On another day, customers were given only six types of jam to choose from. Guess which display table had more sales? While more choices generated more interest, fewer choices led to more sales.5 This insight can be helpful for your retirement planning. Sometimes the simpler approach is better because it is easier and faster to implement. Or, working with a knowledgeable expert can help you narrow and simplify your choices to get your retirement preparation rolling.


Put your plan in writing

It is human nature to want to be consistent with commitments we make. This phenomenon is explained by a behavioral theory called “implementation intention.” An example: a company was trying to encourage its employees to have a flu shot. For some employees, they simply sent the name and location of the clinic. For others, they asked the employees to write down the date and time for their flu shot. As you might expect, those with a written plan were significantly more likely to follow through. You can use the same strategy for your retirement plan. The simple act of writing down your retirement plan is likely to encourage you to stick with it.


Preparing for a secure and fulfilling retirement is often a long journey. It is natural for everyone to get off course now and then. A little nudging can help us stay on course to the destination we are seeking.

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1. New York Times, "Nudged to the Produce Aisle by a Look in the Mirror," August 2018 

2. Davidai, S., Gilovich, T., & Ross, L. (2012). "The meaning of default options for potential organ donors." Proceedings of the National Academy of Sciences, 15201-15205.

3. Capital Group, Envisioning retirement: a simple finding to help Americans prepare for their future," October 2018

4. New York Times, "The Opt-Out Solution", November 2010

5. When Choice is Demotivating: Can One Desire Too Much of a Good Thing? Journal of Personality and Social Psychology 79(6):995-1006, January 2001

This publication is designed to provide general information and is for discussion purposes only. The effectiveness of any strategy is dependent upon each individual’s facts and circumstances. This article does not provide legal, tax or account advice. Because of the possibility of human or mechanical error, the accuracy, adequacy, completeness or availability of any information is not guaranteed.