Slideshows | July 19, 2012

Five intelligent tips to help retire in comfort

Small changes can radically boost the amount we put aside for retirement, according to a fascinating new research paper.

Simple steps – such as setting reminders and promising not to stop saving until a certain goal has been met – have been shown to help increase savings. And this, in turn, can help us retire in comfort.

More persuasive than free money?
Harvard University’s Brigitte Madrian writes that these techniques are potentially even more persuasive than the offer of money (such as retirement contributions matched by employers). Madrian cites automatic enrolment schemes as hugely effective. Automatic enrolment is when employees are required to opt out if they prefer not to save rather than opt in if they want to.
People tend to want to save but research “identified a lack of planning as a primary reason why individuals fail to achieve their goals”.
The paper is published on the National Bureau of Economic Research website.



Take a minute

Forgetfulness and procrastination are among the reasons people don’t follow through on retirement saving plans. It might sound too simple – but setting aside a specific time can help (as information the process and where to go for help). Madrian writes that having dedicated time and information may be even more effective at increasing enrolment in certain employer retirement schemes than a financial incentive. Ready to book some time in your diary?


Remind yourself of the goal

A text message or letter reminding savers of their plans can make a big difference. A series of experiments showed people who got savings reminders were 3% more likely to meet their specified savings goal and they saved 6% more. Reminders about individuals’ savings goals were twice as effective as generic reminders. Replicate at home by setting email (or other) reminders.


Don’t be commitment shy

Restricting the right to withdraw savings until a date or savings amount is met can help. In a study, savers who chose restrictions on accessing their money saved 82% more. Madrian writes commitments are so effective because they reduce temptation to spend and increase pressure from loved ones to not to dip into savings. Being able to credibly say the money is inaccessible helps.


Keep it simple

Having a simple savings plan is better than no savings plan. Having several goals, investments or accounts does not automatically mean the need to use complicated products. Madrian cites a study suggesting a 10-20% rise in participating in savings schemes when simplified processes and products were used.


The more the merrier

Dividing money into different accounts may help. An experiment in India found the savings of labourers whose wages were delivered in two envelopes (one of which was earmarked for saving) increased by between 39% and 216%. It taps into the idea of mental accounting. Multiple accounts up the “psychological cost” of spending money set aside for a specific purpose. The lesson? Multiple retirement accounts – think one for income, another for healthcare – might be more effective.

RetirementGoal settingMental accountingReminders

eZonomics team
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