Visions of early retirement may sway some to save more

Employers looking to spur their employees to save more for retirement might want to consider enticing them with the prospect of retiring early. It’s a motivator that displayed encouraging early promise for the Federal Retirement Thrift Investment Board, the administrator of the federal government’s $720 billion Thrift Savings Plan. In an initiative to coax its participants to contribute more to the plan, the FRTIB last year sent participants personalized communications that detailed how much more they would need to save each pay period to retire one year earlier. “Who doesn’t want to work for one less year?” Elizabeth Perry, a social scientist with the Thrift Savings Plan in Washington, asked rhetorically at Pensions & Investments’ Defined Contribution West Conference in San Diego in October, during a panel discussion on ways to maximize participant engagement. The personalized communication went to roughly 30,000 participants under the age of 55 who were saving less than 5% — or not at all. The estimates of how much more they would need to save in order to work one less year was based on their age and current salary. A 33-year-old participant earning $65,000 per year, for example, would need to save roughly $27 more per biweekly paycheck to replace a year of his or her current salary, according to FRTIB projections. A preliminary look at the results were encouraging, particularly among participants age 35 and older who weren’t contributing. Participants in this group were 8% more likely to start contributing after receiving the outreach, Ms. Perry said in an interview a few weeks after the conference. “We did see a positive increase, which was exciting,” she said, referring to participants who prior to the email had not been contributing to their TSP accounts. Ms. Perry said the FRTIB did not measure the average increase, focusing solely on whether contributions increased. “This was an initial, early test to get a high-level sense of effectiveness,” she said. “It’s a new concept, and we are continuing to think about ways to refine it.” The FRTIB also held focus groups with dozens of participants to get a sense of what they thought about the messaging around saving more to retire early. “In group after group, participants really liked the positive, aspirational tone,” Ms. Perry said, adding that the messaging “really caught their attention.” The personalized messaging with estimates of how much more individual participants needed to save was helpful, but more importantly it zoomed in on something that resonated with participants, Ms. Perry said. “We’re all bombarded with information all the time, and part of the way that we figure out what to give our attention to is what feels relevant to us,” she said, noting that the pandemic made people value their time more. Ms. Perry said that the initiative was based on a hunch that “reframing dollar amounts as time” would help sway participants and not on any specific research she is aware of. Some support for the idea, however, can be found in the Financial Independence, Retire Early or “FIRE” movement. Members of the FIRE community look to save 50% or more of their income so they retire early or otherwise gain the financial freedom they need to pursue the work and interests they love. While numbers on the size of the FIRE community are not easily available, the idea of early retirement as embodied by FIRE devotees has picked up steam with several books on the topic, including “Your Money or Your Life,” which became a New York Times bestseller.