Covid-19 has thrown a wrench in retirement planning. Rising unemployment, a volatile stock market and economic uncertainty are jeopardizing the ability of many families to plan for the future. However, even before the pandemic, saving for retirement was not easy.

According to a U.S. Federal Reserve report from 2018, one in four non-retired households had no retirement savings at all, and more than 40% of non-retired adults said their retirement savings were not on track. Even for those households with the means to save, employers shifting from defined benefit plans (where they completely pay for and guarantee retirement income) to defined contribution plans (where employees contribute, participation is voluntary and there are no guarantees) made putting money away more complicated.

Why? Research has shown that the voluntary nature of these defined contribution plans created room for some common psychological blinds spots to get in the way of saving. For example, studies have found that when it comes to actively managing retirement plans, most people default to not doing anything year after year. Psychologists call this status quo bias, as it is far easier for someone to do nothing, and keep the status quo, than to take action.

Another blind spot is hyperbolic discounting, which occurs when someone puts too much weight on the present when making decisions about their money. As a result, they focus on how much money they have in the short term and tend to save less for the long run. Both status quo bias and hyperbolic discounting tend to result in mistakes like not saving enough or not saving at all.

There are other influences to watch out for as well. My own research has found that mental health issues such as anxiety and depression can decrease a person’s probability of holding a retirement account and a person’s retirement savings as a share of financial assets. These issues also are associated with having less money in retirement accounts and a greater probability of withdrawing from them. This is particularly pertinent today, as the Covid crisis has intensified depression and anxiety for many.

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