Why Retirement Planning Feels So Hard, and What the Research Says Helps

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Most of us know we should plan for retirement. Most of us also put it off. That gap has a long research history, and the findings are more useful than the usual lecture about willpower. This article walks through what the authors found, where the evidence is strong, and where it is thin. It is educational and is not financial advice.

The pull of now

David Laibson, in a 1997 paper in the Quarterly Journal of Economics, studied what happens when people discount the future in a hyperbolic way. The paper reports that hyperbolic discount functions generate time inconsistent preferences, which creates a reason for people to restrict their own future actions. In plain terms: the version of you who plans to save next month changes their mind when next month arrives, and the earlier version knows it might.

Laibson's paper is a theoretical model. It explains why a pattern is possible; it does not by itself measure how many people behave this way or how much it costs them. We cite it for the idea, and we lean on the experiments below for evidence about behavior.

Why knowledge alone does not fix it

Annamaria Lusardi and Olivia Mitchell reviewed research on financial literacy in the Journal of Economic Literature in 2014. They treat financial knowledge as a form of investment in human capital and assess what low knowledge means for household decisions. Their review is a useful map of what people know. Our earlier version of this article credited them with a specific finding about present bias, and the abstract does not say that. We have removed the attribution.

The ostrich effect is a related idea. Niklas Karlsson, George Loewenstein and Duane Seppi gave the pattern that name in a 2009 paper in the Journal of Risk and Uncertainty on selective attention to information, studying it in investor behavior. The pattern they describe is avoiding information during uncertain or risky situations. A retirement savings gap is a common example of information people would rather not look at, though we did not find in these sources a measurement of retirement calculators specifically.

What moves behavior: defaults

Brigitte Madrian and Dennis Shea studied one corporation that changed its 401(k) plan to automatic enrollment. Their abstract reports two findings. First, 401(k) participation was significantly higher under automatic enrollment than under the earlier opt in rule. Second, many employees stuck with both the default contribution rate and the default fund allocation. The plan's economic terms did not change, so the effect came from the way the choice was framed.

Two cautions apply. This is one company, and the second finding cuts both ways: a default that starts people saving can also keep them at a low contribution rate if nobody revisits it.

What moves behavior: committing in advance

Richard Thaler and Shlomo Benartzi designed the Save More Tomorrow program (SMarT) for workers who save below optimal life cycle rates. Participants commit in advance to put a portion of future salary increases toward retirement saving. The authors report these results from the initial implementation:

• 78 percent of eligible workers enrolled.
• 80 percent remained enrolled through the fourth pay raise.
• Average saving rates for participants rose from 3.5 percent to 13.6 percent over 40 months.

The design works with the pull toward the present instead of against it. Saving comes out of a raise you have not received yet, so nothing in your current paycheck shrinks. The result comes from the authors' own program, so read it as encouraging evidence for the design, not a guarantee for any particular employer plan.

Making the future person feel real

Hal Hershfield and colleagues ran four studies using immersive virtual reality. Participants viewed age progressed renderings of themselves and used interactive decision aids. The authors report that those who interacted with their virtual future selves showed an increased tendency to accept later monetary rewards over immediate ones. Their idea is that a stronger link to the future self motivates saving.

The evidence here is of a different kind than the savings program above. The outcome is a choice between rewards in an experiment, not years of contributions to an account. We rate the behavior of picturing your future self as Low for that reason, while noting it is a reasonable and cheap thing to try.

Based on that research, one way to act on it is to read the work of its lead author, who wrote a general book on the topic. Because we earn a commission if you buy through the links below, here is how we rate it: we are rating the behavior of building a connection to your future self, not the brand of the book, and we have not rated the book's own claims.

What the evidence adds up to

The studies agree on a direction, with different strengths. The strongest evidence we reviewed is about structure: defaults and advance commitments changed what people did in the settings the authors studied. The weakest is about motivation: tools that try to make the future feel closer rest on lab experiments. Nothing here says you lack discipline. The authors describe predictable patterns that a well designed choice can work around.