Four innovative ways to improve retirement savings

While traditional retirement plans require individuals to actively enroll and make savings decisions, other retirement plans automatically enroll employees unless they choose to opt out. These automatic plans have emerged as a compelling strategy to enhance participation and savings rates, leveraging the power of inertia and behavioral biases to encourage participation and promote savings. 

The Consolidated Appropriations Act of 2023 (HR 2617) was signed into law in December 2022, and includes important provisions affecting retirement savings plans, which are intended to build upon the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act.⁷ These provisions, collectively referred to as SECURE 2.0, offer many new benefits designed to improve employee retirement outcomes by making it more attractive for employers to offer retirement plans. Relevant elements include requiring plans established after December 29, 2022, to automatically enroll new employees, and to escalate their contributions annually up to 10% to 15%. Positive outcomes for employees would likely be enhanced, however, if the legislation were made effective to plans established before December 29, 2022, effectively bringing pre-existing plans into the auto-enrollment and escalation regime.

For many, saving for retirement may seem like a distant goal cloaked in uncertainty. The concern: We don’t know what we are saving for — mortality, morbidity, longevity or an old-fashioned emergency. Retirement products that provide the option to use the plan for immediate life events such as emergencies or other unforeseen events can encourage saving, individually or through an employer. Then the solution becomes: Just start setting money aside, and the plan will optimally address any life events as they come to pass.

Offering single-premium immediate annuities (in plan) can also act as a form of longevity protection, and having these included as a qualified default in a plan could make them more affordable. Offering easy-to-understand target-date funds might also increase participants’ comfort with risk and improve their planning.

“To truly expand access to retirement security for more people, we must find ways to incorporate the best practices and key features of traditional pensions into today’s retirement system to help individuals avoid the potential hazards of longevity risk and market volatility risk on otherwise well-balanced financial plans. It is critical that the industry co-create new ways to protect the assets that reside within qualified defined contribution retirement plans, as well as the future income streams they will need to generate in retirement.” – Rob Falzon, Vice Chair, Prudential Financial, Inc.

Incorporating game-like elements into retirement savings may be a powerful tool to transform a daunting task into an engaging and rewarding journey. Gamification’s allure lies in its ability to tap into the inherent human desire for play, competition and achievement. By incorporating elements such as points, badges, leaderboards and challenges, gamified retirement plans offer an interactive and stimulating experience.

Some key elements for gamified retirement plans include:

• Goal-setting: Participants set goals and track their progress through visual tools, providing a clear sense of direction and motivation.
• Rewards: As reinforcement for positive behavior, participants receive rewards and incentives, such as badges, points or even real-world discounts and exclusive benefits, encouraging continued engagement.
• Financial literacy: Interactive games, quizzes and simulations can make complex financial concepts more accessible and understandable, empowering more informed decision-making.
• Social interaction: Participants can connect with peers, share achievements and participate in challenges, enhancing accountability.

Artificial intelligence (AI) has emerged as a transformative force and, in retirement savings, can empower individuals to make informed decisions, optimize their retirement savings strategies and safeguard their financial future. Encouragingly, as AI capabilities continue to advance, the applications in retirement savings will only grow.

Key features of AI augmentation of retirement savings might include:

• Personalized recommendations: AI can analyze an individual’s financial data and goals to provide tailored recommendations for retirement planning, suggesting optimal contribution levels, investment strategies and retirement income targets.
• Intelligent asset allocation: AI can also analyze historical market data, economic indicators and individual risk preferences to dynamically adjust the allocation of assets, maximizing returns and managing risks related to an individual’s financial goals.
• Behavioral analysis to encourage positive behaviors: Leveraging AI to analyze patterns in financial data and individual decision-making can help identify behavioral biases and provide personalized recommendations to encourage informed saving strategies.
• Personalized customer service: AI-powered chatbots and virtual assistants can provide personalized customer service, answering questions, providing account information and assisting with queries to enhance the participant experience and eliminate pain points.
• Reduced costs: Pricing is affected by the costs of marketing these investment products to appropriate audiences. Given AI’s ability to efficiently analyze huge volumes of data and craft effective marketing materials, there is an opportunity to reduce the cost of some investment products and make them more accessible to larger customer segments.

Importantly, while AI can help people make retirement choices, it cannot do it for them. Human engagement must remain at the forefront.

1. Elizabeth Arias and Jiaquan Xu, “United States Life Tables, 2020,” National Vital Statistics Reports 71, no. 2 (August 8, 2022): 51, https://www.cdc.gov/nchs/data/nvsr/nvsr71/nvsr71-01.pdf.
2. Megan Brenan, “Americans’ Outlook for Their Retirement Has Worsened,” Gallup, May 25, 2023, https://news.gallup.com/poll/506330/americans-outlook-retirement-worsened.aspx.
3. Board of Governors of the Federal Reserve System, Economic Well-Being of U.S. Households in 2021, May 2022, 79, fig. 43, https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf.
4. The Pew Charitable Trusts and Econsult Solutions, The Cost of Doing Nothing: Federal and State Impacts of Insufficient Retirement Savings, May 2023, 3, https://econsultsolutions.com/wp-content/uploads/2023/05/Impacts_of_Insufficient_Retirement_Savings_May2023.pdf.
5. Pew, Insufficient Retirement Savings, 21.
6. “America’s Retirement Savings Crisis Could Cost Federal and State Governments an Estimated $1.3 Trillion by 2040,” National Conference of State Legislatures, updated July 17, 2023, https://www.ncsl.org/labor-and-employment/state-and-federal-impacts-of-insufficient-retirement-savings.
7. KPMG LLP, KPMG Report: Summary and Observations of Tax Provisions Under SECURE Act 2.0, February 2, 2023, https://assets.kpmg.com/content/dam/kpmg/us/pdf/2023/02/tnf-kpmg-report-secure-act-feb-2-2023.pdf.
8.  KPMG, SECURE Act 2.0, 2.
9. KPMG, SECURE Act 2.0, 2.