How automatic saving plans save users twice as much over five years

In the last few decades, retirement programs have shifted from being based on mostly employer contributions to mostly employee contributions. As such, millions of people are not properly saving for retirement. They may not know their best savings rate, procrastinate, or fear they can’t afford it.

Thaler and Benartzi utilized behavioral principles to create the Save More Tomorrow (SMarT) program, which increases employees’ annual contribution rate each year (corresponding to a raise) up until a maximum rate has been reached. In this study, the SMarT program has been implemented in three different settings. The first, Plan A, introduced the plan to employees via a one-on-one meeting with a financial planner. The second, Plan B, introduced it via one letter through the mail, and the third, Plan C, executed the program as the automatic option. The most effective method was Plan C, which increased projected savings rates from 5% to 10.9% within five years.