Nudge Yourself into Retirement for the Best Years of Your Life!

Beeeep beeeep beeeep… Ugh. The alarm clock. It’s Monday morning and…

• You are dreading the work week, but you aren’t yet sure you financially prepared to retire.
• You are dreading the work week, you ARE prepared for retirement, but are still a bit worried about pulling the plug on work
• You hop out of bed, excited for work, but you also wonder what else you could be doing with your life. Would retirement be more fun and fulfilling than the job?

In all three of these cases, a nudge could be all you need to get the ball rolling in the right retirement direction. “Nudged? What do you mean, nudged? Like someone bumped into me?” Not exactly. A nudge is a behavioral trick to help people make decisions and take actions to accomplish what their goals.

Enter Richard Thaler and Cass Sunstein

Richard Thaler and Cass Sunstein are behavioral economists.  They study why people do the things they do. Starting when he was a graduate student at the University of Rochester, Thaler became obsessed with stories of people that seemingly did dumb things, even when they were aware of the smart choice they should have made. They had all the information, could have easily made the correct choice, but instead, they’d irrationally choose the worst option. Thaler wanted to know why. And moreover, he longed for a solution to help people make better decisions – ones that the economists would have assumed they’d make all along. He discovered the nudge.

Nudge – The Secret Friend You Never Knew

Years later, with the help of his new psychologist friends, Kahneman and Tversky, Thaler was able to take his quirky observations to the next level. He performed many classroom tests (not based just on economic principles anymore, but also on psychological human behavior) to test his theories and his understanding of how the complex human mind actually works. What he discovered was basically that humans are a bit lazy and the decisions we make are heavily influenced by both big important factors, but also small seemingly meaningless “nudges.” Thaler and Sunstein, discovered a variety of methods to defeat this common laziness among humans and packaged it nicely in their book, “Nudge: Improving Decisions About Health, Wealth, and Happiness.”

So What is Nudge Anyway?

Basically, a behavioral nudge is a way to help people make better decisions in their daily lives.  This is mainly done by taking as much friction out of a decision as possible.

Examples of Nudges in Everyday Life

401k Contributions: Let’s say a company offers a 401k with a 100% match up to 5% of your contributions. All you have to do is fill in the one-page form and submit it to HR. As easy as this may seem, corporate records show that this only happens about 49% of the time. With Thaler’s simple suggestions however, corporations were able to increase enrollment to 86%!! Whoa. How in the world did he do this? Simple. He took out the friction. Instead of having new employees opt into the 401k programs, he recommended that companies just auto-enroll their employees and give them the option to opt out. Due to people’s laziness under the old plan, they often never got around to enrolling in the 401k plan. Under the new method of auto-enrollment, the same laziness often kept people from opting out – hence the 86% enrollment. Buy More Fruits and Vegetables: Some Grocery Stores have a  cart divider that states, “Place fruit and vegetables in front of this divider, all other food goes behind.” This prompted people to think about their fruit and veggie consumption and to actually buy some on this shopping trip! As you may have guessed, sales of fruit and vegetables skyrocketed. Cleaner Bathrooms: Have you ever seen that viral video of the mom that’s down on her hands and knees by the toilet that says, “Your urine…should go here. Inside the bowl!” Apparently she was sick of cleaning up spills from her sons and hubby. Well, she clearly didn’t have a fake fly in the bowl like many others do today. “Say what?” Yup, you heard me right. They’re even doing it at JFK Airport in New York. On each porcelain urinal, you’ll find an etching of a fake fly right above the hole. As it turns out, this nudge took urinal messes down dramatically!

Nudging Your Way Toward Retirement

If nudging can really drive you to eat more fruit, be tidier, and contribute to your 401k – all without even thinking about it – think about what you can do for yourself if you set up your very own set of nudges…you know, for things that you actually want to do! Here are some possible nudges — cues, motivations and easements — to help different types of people get to the goal of  retirement:

1. Know What You Want to Do After Work Ends

It is best to retire to do something, not just to escape whatever you do to earn money. If you want to retire, but haven’t quite figured it all out, try defining exactly what you want to do in retirement.  This is a motivational nudge that can psychologically help you set the plans in motion. Print out your dream picture — golfing in some dream destination, RVing around the country, setting up a cake baking business out of your home or whatever it is that motivates you. Put the picture on your fridge and on your bathroom mirror.  Draw a bunch of question marks on it. In other words, make sure you are asking yourself a few times a day: “When are we going to start this?” Eventually, this picture will drive you mad and will prompt you to figure out how to start the retirement ball really rolling. Not sure what you want to do? Maybe think about your retirement in 5 year segments and consider what you want to be doing and what will be important to you in each segment.  Here are a few resources to help you:

• 9 tips for figuring out and focusing on what you want to do in retirement
• 120 ideas for what to do in retirement
• Write a retirement manifesto

2. Get Motivated to Save More Money

Let’s say you already put a bit into savings each month, but you’d really like to save more. How can you nudge yourself into taking action on this desire? First of all, you need a why or a motivation. What’s your reason for saving more? The answer likely won’t come to you immediately. You’ll probably have to pretend you’re a three-year-old and ask yourself “why” about five times before you get to the root of your answer. “I want to save more so I have more money in retirement.” – Why? “So I can live more comfortably.” – Why? “Because I don’t want to worry about money each month.” – Why? “Because I don’t want to burden my kids financially when I’m old.” – Why? “Because that’s what happened with my parents. I had to take care of them financially when they were old and it really set me back a few years.” And there you have it… Your nudge to save more money is going to be a picture of your kids. Put their picture in your car, in your wallet, on your laptop and write the word “save” on it. Every time you see it, you’ll think about your true why and want to sock money away in your savings account for those rainy days and to get you through those retirement years. What is your “why” to start saving? What will prompt you to action here? Need more inspiration? Here are 8 ways to save big and a guide for how to use catch up contributions after 50.

3. Make Saving Easy

Once you have your reason for saving more, you could add another nudge to make sure you really do it — automate your saving!  Automatically have a percentage of your paycheck deposited into savings every month. And, if you are employed by someone else, ask them to increase your savings rate whenever you get a raise.

4. Spend Less Money

Do you have trouble saving money because you simply spend too much? There might be a certain something that’s a weakness for you. Maybe it’s purses, technology, shoes, things with motors – whatever the case may be, you know you’re susceptible to spending money when you see them. So what can you do? It’s time for another nudge. When you’re out and about or online (the times when it’s most likely that you’ll spend money), have a picture of all your stuff (your pile of shoes, your 20 different tech devices, etc.) and pull it out to remind yourself of the ridiculous amount of that thing you already have – and that you certainly don’t need another one! And if it helps (and it usually does), throw in a negative nudge to yourself of your spouse wagging his or her finger at you. 🙂 Or, maybe just tape a little reminder on your credit and debit cards that says: “spend less money.”

5. Have a Better Investment Strategy

We all wish we were an investing wunderkind.  The reality though — proven by decades of data and analysis — is that no one is really that much smarter than anyone else at picking the right stocks. The real trick is just having a strategy and sticking with it.  Better yet, have a simple strategy — something like some money in an index fund, some in bonds and some in cash, stick with it. Don’t overthink.  Don’t hem and haw and try to time the market.  Just develop an investment strategy and stick to it. Want help with a simple investment strategy?  Set up another nudge — talk with a financial advisor or explore roboadvisors.  No more excuses.

6. Take Control of Your Own Numbers

Personal finance is complex.  A good retirement plan requires a lot of detailed calculations.  This is not something you are supposed to do all on your own. Online retirement calculators can be an excellent nudge toward helping you understand and take control of your own finances — enabling a more secure retirement. The best of these tools make it easy to create and maintain a completely personalized plan without having to meet and feel slightly dumb while talking with a financial advisor.  The Boldin retirement calculator is a unique tool that lets you assess where you are now and then adjust and maintain your information over time.  This tool has been named a best retirement calculator by the American Association of Individual Investors (AAII), Forbes Magazine, The Center for Retirement Research at Boston College, MoneyBoss, CanIRetireyet and many more.

7. Create a Plan for a Secure Future and You Are More Likely to… Have a Secure Future

Do you want a secure future in retirement? All you need to do is create a plan! According to the LIMRA Secure Retirement Institute (LIMRA SRI), pre-retirees and retirees with a formal retirement plan save more and are twice as likely to have estimated their expected income and expenses in retirement. They are also more likely to have calculated how long their savings will last. The odd part though.  Not many people have a plan.  Estimates suggest that only 25-50% of people of retirement age actually have a detailed plan. Have you ever sat down and really gone through your retirement plan? Be honest. For most of us, we have to admit that we’ve pretty much been along for the ride and have just done as we were told in terms of retirement investing. Sure, we’ve got money saved and we think we’ll be fine, but haven’t actually dug into the numbers for ourselves. Well, it’s time my friends. It’s time that you take a quick break from the hustle and bustle of life, shield yourself from all the nudges, and just get real with your own numbers. Thankfully, the retirement planning calculator makes it easy.

8. Set a Retirement Date and Tell Everyone About It

You have documented what you have and researched and refined your options. Now it is time to finalize some decisions and commit to your plan. Sharing your ideas for how you will retire will help make it real for you. Of the many important dates, you will probably want to set an official retirement date for yourself. Even if you will be easing out of work or getting a retirement job, don’t be shy about celebrating this important milestone in your life. Retirement is a major accomplishment. Get tips for throwing a great retirement party!