While looking at some research on the Stanford Center on Longevity website, I came across an interesting white paper with the wordy title: Beyond Defaults:Using Behavioral Economics and Psychological Science to Improve Retirement and Health Outcomes.
The paper was published by the International Foundation of Employee Benefit Plans, and what really caught my attention was the admission in the introduction that the financial and health care education provided by many employers is essentially failing. While this is something I’ve long suspected given lots of circumstantial evidence, it’s interesting to see the industry begin to acknowledge the issue.
Employers began moving from traditional pensions to 401(k) plans in the 1980’s and at the same time there has been a rapid shifting of healthcare costs and decisions to the employee as well. The issue is that most people aren’t, and never wanted to be, financial and medical experts.
The paper acknowledges that the retirement and benefits world assumes everyone will make: “decisions like the highly logical, highly rational Mr. Spock of Star Trek.” It only took them 30 years to figure out that people behave like humans, and often make many decisions that are less than ideal.
The point of the paper is that a relatively new field called Behavioral Economics may help make things right. Somewhat ironically, this field has been used to help sell you things for some time, and we see this in advertising and how our electronic devices seem to know what we want.
The researchers go on to highlight five action steps based on a poll of members (employers). These are:
- “Convince younger workers to save for retirement”
- “Help plan participants determine how much to save”
- “Help older workers decide when to retire, including when to start social security…”
- “Help participants become better consumers of health care”
- “Help participants adhere to medical treatments”
Nothing too surprising there. Some of the suggested approaches vary from creative and fresh, to common wisdom, to downright scary.
An example of creative and fresh is dealing with “loss aversion”: people feel more strongly about losing $1 than gaining $1 when it comes to investing, creating investors that are too conservative. A common wisdom example is educating people on the advantages of delaying Social Security, nothing new there. And finally, the scary example: “consider eliminating copays on medicines that treat chronic conditions” … let’s face it, employers want to lower their costs.
I thought this paper was interesting because it offers a peek behind the curtain at what the employers who offer “financial and health care” information to many are wrestling with. What caught my attention was the admission that what they have been doing, for decades, hasn’t worked, but many of us already knew this.
My takeaway for you: please don’t assume what’s offered through your employer’s benefits website is a silver bullet, or that you’re even interpreting it with 100% accuracy because they admittedly haven’t been getting it right. Reducing things like how should I invest to a series of 3 or 4 questions doesn’t really capture your risk tolerance, or the realities of long-term investing.
Buoyant Financial was founded to provide expert planning and management with low fees that won’t create a drag on returns because most people don’t want to become experts, and bet their retirement on this new-found expertise.
We’re always happy to answer questions, and offer perspectives. Please don’t hesitate to reach out!
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