If you’re having trouble increasing the amount you’re saving for retirement, it might be time for a fresh start.
That’s right, a fresh start. Researchers recently conducted a field experiment to study the effect of framing future moments in time as new beginnings or “fresh starts.”
In the experiment, university employees received mailings with an opportunity to choose between increasing their contributions to a savings plan immediately or at a specified future time point.
And what the researchers found was this: Framing the future time point in relation to a fresh start date – the recipient’s birthday or the first day of spring, for instance – increased the likelihood that the mailing recipient chose to increase contributions at that future time point without decreasing their likelihood of increasing contributions immediately.
“Overall, fresh-start framing increased retirement plan contributions in the eight months following the mailing,” wrote John Beshears, an associate professor at Harvard Business School, co-chair of the Behavioral Economics Executive Education Program and co-author of the study.
In other words, fresh-start framing works.
So, how might you apply the results of this research to your retirement savings plan?
Increasing your savings on your birthday. “It’s very easy for people to get discouraged if they have been intending to contribute more to their 401(k) plan but haven’t gotten around to it,” says Beshears.
His advice: Use your next birthday, or another date that marks a new beginning, as a moment to create a “psychological break” from their past patterns and to set yourself on a new path toward a better financial future.
Auto increase. Check whether your plan sponsor allows you to schedule an auto-increase through your online portal. “If that’s an option available to participants, I’d recommend thinking about an upcoming life transition that represents positive growth or a fresh start,” suggests Sarah Newcomb, a behavioral economist for Morningstar and author of “Loaded: Money, Psychology and How to Get Ahead without Leaving Your Values Behind.”
“Is the new year a time you like to wipe the slate clean and try new things?” she asks. “If nothing feels particularly motivating, you can try creating a new temporal landmark that represents another time in your life you took a step forward.”
For example, Newcomb noted, that people in recovery might feel motivated by increasing their savings on the anniversary of their sobriety. “Why not celebrate your progress by improving your life financially?” she adds. “Whatever the date, the important thing is to pick a time that feels like a fresh start or a transitional moment. The more meaningful it is to you as a fresh-start moment, the stronger I would expect the fresh start effect to be.”
Look for firsts in your life. Daniel Crosby, the chief behavioral officer at Orion, recommends looking for opportunities for a fresh start. “It’s not just New Year’s Day,” he says. “It could be the first day of school, first day of spring, or the first day of a new job. Plan participants could look for these as natural catalysts for behavior change.”
Use behavioral finance to your advantage. Relegating the “old you” to the past is another tactic to consider, says Crosby. “Understand that change can happen in an instant and use the fresh start as a way of banishing your former self to history,” he said.
In addition, Crosby recommends being intentional in how you frame things. “The ‘first day of summer’ has far more persuasive appeal than ‘the second week in July,’” he says. “Take pains to frame your initiative as a fresh start and not just another day of the week.”
Plan sponsors can help too. Sponsors of 401(k) plans – employers – can be also helpful if they highlight these opportunities to make a fresh start, says Beshears. “For example, plan sponsors could time their communication with employees to coincide with certain temporal landmarks.
Others agree that plan sponsors have a role to play in helping workers use a fresh start. “Using meaningful temporal landmarks helps us embrace behavior change because we are already undergoing a psychological transition, even if it is only a symbolic one like the turn of a new year or a birthday,” says Newcomb.
Plan sponsors or employers could use this to help boost enrollment/escalation by giving people options such as this: “Automatically enroll me or increase my contribution:
- Next Jan. 1
- Day 1 of the next tax year
- On my next birthday
- On my next work anniversary
- Day 1 of the next annual compensation cycle (when my next raise goes into effect)
- On a specific day of my choosing (my wedding anniversary, etc.)
“It’s a simple way to get people to embrace the change by cognitively linking it to a psychological transition they are already planning to make,” said Newcomb.