Nudging Retirement Savings Among Older Workers

By: Brian Hengesbaugh

It is never too late to save for retirement. With the Baby Boomer generation rapidly approaching retirement age, it is imperative to promote healthy retirement planning.

Although we know that saving for retirement is important, voluntary retirement savings plans are often underutilized. Changing saving habits can be challenging – especially among older employees. Standard interventions that aim to increase retirement savings often focus on the importance of being able to compound the value of savings over many years. This type of intervention often leaves older employees with diminished motivation to increase saving for retirement due to the limited number of years they have remaining to contribute to their savings plan. Older workers may also be harder to influence with interventions because they have had comparatively more opportunities to develop and adhere to personal retirement savings strategies. 

A recent study conducted by a research team at North Carolina State University explored an inexpensive way to nudge older employees to prepare for retirement. The research team developed an informational nudge that highlighted the importance of increased retirement savings specifically for older workers. This nudge was an email sent to older public sector workers that provided information regarding increased either liquidity, catch-up provisions, tax advantages, longevity risks, and increased maximum contribution limits for older workers. The email also included a link to the website for the supplemental retirement plan.

The experiment found that, as a result of a nudge, there was a statistically significant increase in supplemental retirement plan contributions among older workers who were already participating in a supplemental retirement savings plan. Additionally, those that received a nudge reported they were more likely to have a retirement plan and feel more confident with their retirement preparedness. The effect of a nudge was limited to individuals who were already participating in a supplemental retirement savings plan and did not influence older workers to begin making voluntary retirement savings contributions. 

What did this experiment show us?
(1)    Low-cost informational nudges in the form of emails targeted to older individuals who are already saving for retirement are shown to be a valid intervention to improve retirement income security.
(2)    There are different situational factors and lived experiences that frame the decisions of older workers. These situational factors and experiences must be taken into consideration as we seek to improve economic stability for workers of all ages.

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