When adopting a new habit, the natural tendency is to give up instead of asking for help. That can get in the way of saving for retirement, according to one expert.
“A lot of the things that I study look are behavioral biases and psychological blind spots,” said Vicki Bogan, an associate professor at Cornell University. “When it comes to retirement savings, people make these systematic mistakes in managing their finances.”
“So they should be doing things, but they don’t behave according to the way that a financial planner or financial model would say that they should be,” she said.
Dr. Bogan shared her advice to “overcome some of the psychological issues that influence retirement savings behavior” during a virtual event hosted on Feb. 18 by Ally Financial.
What academics call status quo bias or inertia is why people find themselves in suspended motion, she explained.
“They don’t know where to start and so they do nothing,” said Dr. Bogan. “So you kind of get stuck with this inertia and so ‘I’m not investing right now, why should I do anything’ loop.”
Overcoming the inertia starts with one step. If you have access to a retirement savings account like a 401(k), 403(b), or IRA, she recommends shifting into autopilot, so to speak, with automatic contributions and deposits.
“So you’re not constantly trying to overcome this inertia. Put it on a schedule, almost like automatic bill pay, where it automatically goes into your 401(k) account,” she said, explaining that any contribution is a great first step to build a nest egg and helps “overcome some of these behavioral biases that we have.”
