Category Archives: Retirement

A Cupful of Good Sense

Behavioral science validates an appeal to retirement savings.

We all know (or have used) this useful little bit of wisdom to motivate employees to save more:

This commonsense comparison shows how very small sacrifices can be leveraged into future financial well-being. It uses a popular purchase, straight-forward math and solid financial advice to educate and motivate. But do we know if this argument actually persuades people to save more?

Probably not. Communicators are often not able to be data driven. There are many historic and practical reasons why this is so. Internal budgetary constraints, imprecise measurement tools and the difficulty in pinpointing attribution within any individual’s psyche are substantial challenges to proving the effectiveness of an appeal.

Instead, we know our audiences, their needs and wants, and how to gather and present our facts with reason and wit. We’ve done it this way since ancient Greeks. The usefulness of the coffee-a-day analogy was obvious and brilliant. So it caught on. It turns out, it’s also scientifically provable. 

Bite-size is easier

On a recent episode of Choiceology (a Charles Schwab podcast focused on personal economic choices), Katy Milkman looked at the merits of breaking sometimes overwhelming challenges into smaller more manageable tasks. Whether it be learning a new skill, rehabilitating from an athletic injury, building your business, or saving for retirement, dividing any large task into smaller segments is a winning strategy for creating initiative and staying on task.  

Hal Hershfield, a professor of marketing and behavioral decision-making at UCLA, was a guest on that episode. Hershfield created a study around how reframing the same goal might change a person’s willingness to engage with change. Using a personal finance app (linked to users’ bank accounts), Hershfield presented an automated savings program framed as three distinct offers.

Users were offered one of the following savings plans and responded accordingly:

  1. Contribute $150 a month. (7% signed up for this offering.)
  2. Contribute $35 dollars a week. (11% signed up for this offering.)
  3. Contribute $5 a day. (28% signed up for this offering.)

Four times as many people signed up for the $5-a-day plan, even though the amount of money taken out each month was the same across all three plans. Why?

Hershfield concluded that people likely think about money in distinct “buckets.” The monthly offering competed with the most expensive items in most budgets, like rent and car payments. Whereas the $5-a-day bucket competed with any number of small insignificant purchases, like a cup of coffee. How significant the sacrifice “feels” to the saver is the most important driver. 

This is a useful insight for employee communicators. We offer employees pathways to wellness, health, continuing education, savings and more. Accomplishing these big, life-changing goals usually requires personal sacrifice on the front end and a payoff later. Breaking those goals into bite-sized actions can help employees find the motivation necessary to get started. 

Good to know

It’s good to know that our methods have merit. We understand that carefully framing an organization’s programs in ways that appeal to employees works. And works well.

It’s also good to know more. Employee communicators can benefit from work being done in fields like positive psychology, behavioral economics, and organizational psychology. The more we know, the better we will be at presenting wellness programs, benefits, retirement options, etc. with all the complexities of available choices in ways that both inform and motivate employees.   

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Retirement Planning

Whose problem is it?

The story has been the same for years: we are woefully unprepared for retirement. According to Northwestern Mutual’s 2018 Planning & Progress Study, nearly 1 in 3 Americans have next to nothing saved for retirement. In America, retirement planning is essentially a private endeavor. But, it’s also a critical component of employer compensation and benefits spending, and overall workforce planning. 

3 Ways for Employers to Improve Retirement Outcomes

Employee stress over finances, both current and future, has multiple direct impacts on employers. Reduced productivity and postponed retirement increase employer health and compensation costs and limit employers’ ability to effectively manage their workforce. As an employer, what does this mean for you and what are you to do?

There are both expensive and inexpensive ways to help with retirement readiness. The more you’re able to do, the better, but even doing just a few things can help put your employees on the right path.

1. Prioritize Retirement Readiness

Most of your employees are desperately in need of financial wellness support, and specifically retirement planning assistance. A Charles Schwab nationwide survey of 1,000 workers with access to a 401(k) plan revealed over 75% of respondents would welcome a financial wellness program from their employer, which could provide education, tools and resources to help with their overall financial health.

Fundamentally, planning for retirement is a numbers game. Understanding how much you want to live on per year when you retire is a first step. Whether it’s $70,000, $140,000, or $280,000 a year, you’ll need to have at least 10 to 12 times this figure in savings by retirement. Help your employees understand where they need to be, monitor their progress and improve their numbers.

2. Perform an Annual Post-mortem

When was the last time you evaluated the effectiveness of your financial wellbeing communication strategy? A 2017 Willis Towers Watson Defined Contribution Plan Sponsor Survey indicates that 88% of sponsors use plan statistics to assess retirement readiness, such as average participation rate, account balance and contribution rate. Yet only one-third of plan sponsors annually measure when participants will have enough money to retire.

This highlights an important gap. We can’t be sure employees are pulling the right levers when we don’t know what goal they are working toward. Before you lay out your financial wellbeing communication strategy for the year, use real-time data to determine your objectives and drive your decisions. By the end of the year, where do you expect to move the needle? Do you want employees to know the 401(k) contribution limits for 2019? Is it important they understand the difference between Roth and pre-tax 401(k) contributions? Think about the results you want to see, and then plot your monthly touchpoints. 

3. Promote Your Resources Year-Round

Worried about where all of these planning tools and materials are going to come from? While you will likely want to customize your overall messaging, chances are your retirement vendors provide robust resources you can use as a starting point. Curate the vendor materials for your employees and fill in as necessary. You can also look to non-profit sites such as America Saves Week and the government’s My Money for additional resources.

Keep the financial wellbeing and retirement planning conversation going year-round. We all benefit from gentle nudges, especially when it comes to things we may be avoiding. 

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