Meir Statman, a Behavioral finance professor at Santa Clara University was recently interviewed by Money Magazine about how well Americans are doing with retirement savings. Specifically, he proposed that many of us need more than a nudge, we need a shove. We’ve used the nudge approach in recent years by automatically enrolling employees in 401(k) plans- often at a starting level of 3% of salary. A good start but not enough to build an adequate nest egg. The shove he proposes would be to mandate savings at a specific level such as 8%. In a culture where choice is a given- and typically not just one option but many, a mandatory requirement might sound harsh. Yet we can look to other countries such as Australia where mandatory savings rate of 9% that will be increasing to 12% over the next decade.
So are you self sufficient with no need for a nudge or a shove? If so, are you on track to replace 80% of your pre-retirement income. Or are you someone who needs a nudge or a shove? Since we don’t have this type of mandate in the U.S. , you will need to make sure that you give yourself a shove to get to a savings rate above 10%. If your employer sponsored retirement plan offers a way to automatically increase your savings rate on a regular basis, you can be on the right track by simply signing up for that.