Why ‘nudging’ works: People need a push when it comes to retirement savings
Studies show that we are living longer and retiring later, but too many of us are not adequately preparing for retirement. People who do not save for retirement often do not have access to an employer-run retirement program, do not understand how much money they will need to save, or lack the financial knowledge to make the best investment decisions.
For many, working longer seems to be the new retirement strategy.
There are many reasons why individuals do not always act in their best interests when it comes to saving for retirement. In his book “Misbehaving – The Making of Behavioral Economics,” Nobel Prize-winning economist Richard Thaler identifies some reasons why people often fail to save for retirement. These include inertia that keeps people from even taking action to begin to save; loss aversion that keeps people from taking actions that reduce their paycheck; and a short-term focus on actions that provide immediate gratification rather than planning for the future.
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