Improving retirement plans with behavioral science
In Voya’s whitepaper Using Decision Styles to Improve Financial Outcomes, renowned Behavioral Economist, Shlomo Benartzi states, “The reason it’s a mistake to treat the retirement journey as a one-time event, and not an extended journey, is that it fails to account for the risk of getting off track, as well as the opportunity for course corrections.”
Begin the check-up with analyzing decision styles
People use two modes of decision-making: instinctive and reflective. Most behavior is governed by the instinctive system, like driving or hitting a baseball. Some behavior is more slow and deliberate and engages the reflective system, like taking the SAT. Using these concepts, we can use digital measurements to diagnose how plan participants made their original enrollment decisions. For example, participants who have logged onto the web within the past year, clicked on projected retirement income, or explored different savings rates would be consider to have used thinking that is more reflective when they made their enrollment decisions
9 in 10 plans1 are classified by “instinctive decisions” and poor retirement outcomes. Consumers who are instinctive in their decision-making are far more likely to require significant course corrections in their retirement plans.
Want to see how your plan is performing? This year, Voya will introduce a Reflection Index tool on Sponsor Web that’s specific to your plan. The tool will be available for those who share participant data.
To learn more about behavioral science and improving your employees’ financial futures, download our whitepaper Using Decision Styles to Improve Financial Outcomes.
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1Voya data from 428 plans with more than 25 participants. Participants with an annual salary below $20,000 or projected income replacement above 200 percent were excluded. Plans with an average Reflection Index below/above 2.0 are categorized as “Instinctive Decisions” / ”Reflective Decisions.” In addition, plans with an average income replacement below/above 70 percent are categorized as “Not on Track” / “On Track.”