Behavioral Finance Strategies for Better Retirement Planning

Behavioral Finance Strategies for Better Retirement Planning Understanding the above biases is the first step toward improving retirement planning. But there are many practical strategies that an individual may employ to overcome the above biases in order to optimize his or her retirement savings. a. Commitment Devices: Making Retirement Saving Irresistible One of the very powerful tools is commitment devices - mechanisms to ensure that people remain committed to a long-term objective, for it creates consequences for those who may drift away from the objective. Automatic enrollment in a company\'s pension plan is the kind of commitment device that could force an employee to start saving part of his salary for retirement purposes, often automatically and with minimal further steps required. How to Use Commitment Devices:- • Employer-Sponsored Plans: Use employer-sponsored retirement plans, such as 401(k)s, if your employer offers a matching contribution. Automatic payroll deductions ensure saving for retirement will be a priority. • Automatic escalation: Many retirement plans provide the option for participants to automatically increase their contribution rate every year, so that the retirement savings grow over time without requiring c