Nudge for

Retirement
Savings
Neha Narla (PGDMB14046)
Sreemathy G (PGDMB14078)
Srimathi Sriram (PGDMB14079)
This document gives five suggestions to nudge people in their early 20s and 30s to overcome
certain biases and start saving for their retirement

2/17/2015

Loss aversion and status quo bias

When the contribution to pension account is increased without an increase in pay, there is a fear of loss
of pay in people.
Similarly, having a lower savings rate even after their pay raises is not the right way to invest.
To avoid such a loss aversion and status quo bias, increase in pension contribution must be linked with
a pay raise.
This option will help reduce the amount of self-control needed for people, since it gives them a feeling
that they need not cut down their spending, while at the same time the contribution to pension account
is consistent with the increase in pay.

Herd mentality and Availability bias

Information of people/peers belonging to a different income groups and the approximate percentage
they save for their retirement can be communicated through visuals to increase their risk appetite and
persuade them to save more.
This method has two benefits 1) Peer pressure can influence a person to start saving for t heir
retirement 2) Availability Bias When a piece of information is readily available, people tend to believe it
and serves as a nudge to save for their retirement similar to their peers.

Freedom of choice

Automatic enrollment to retirement plan can serve as the default option.

Most of the youngsters today have no time and patience for anything. Keeping the options simple and to
the point will encourage them to opt for retirement plans.
Freedom to opt out of the plan at any time can be provided. But the procedure to opt out of the plan
needs to be made difficult with elaborate formalities, so that it acts as a demotivating factor. This will
ensure that not many people will opt out of the plan and they save more.
One other method to make opting out difficult is by fixing a pre-determined maximum amount that a
person should save if he wants to opt out of the plan. This will ensure that he/she saves at least a
certain amount for his/her retirement.

Priming

Priming will help in removing clouded fear about their future with the help of systematically designed
questions and help them in planning their saving policy.
Questions can be asked frequently to employees on when and how they want to retire in the future. This
would act as an unconscious stimulus which will nudge saving automatically.
Financial Literacy - By making their uncertain retired future clear by explaining the benefits of the plan,
individuals willingly sacrifice things today for a better life after retirement.

Framing bias

Relative values of choices are not as important as how those choices are framed. Two outcomes may
be identical but the way it is framed can change the responses.
Saving for retirement might seem like cutting down their expenditures by around 30% every month and
hence they many people may prefer spending it rather than saving. Instead, a retirement plan can be
framed to highlight that they have the freedom to spend 70% of their income now and save only 30% for
their retirement.
Visuals such as infographics can be created to highlight using charts/graphs on the amount of money
people gain at the end of a saving period due to simple compounding instead of just citing the amount
they ought to save to reach it.