Comparing Behavioral Approaches to Increasing Savings


Many older American households approaching retirement age have accumulated little in the way of retirement savings. Over the past two decades, behavioral researchers have explored a variety of potential “nudges” designed to increase retirement savings. Many of these interventions have been shown to have substantial impacts on retirement savings behavior. However, validating, comparing, and selecting from different approaches can be difficult. Existing studies differ in their samples, the characteristics of firms included, study periods, and outcomes, which can alter the impact of policy interventions. In addition, the existing literature has largely not explored the relative cost-effectiveness of the various options.

In How Do Behavioral Approaches to Increase Savings Compare? Evidence from Multiple Interventions in the US Army (NBER RDRC Working Paper NB22-10), researchers Richard Patterson and William Skimmyhorn examine the relative efficacy and cost-effectiveness of four policy options designed to promote retirement savings: behaviorally informed messaging, provision of target retirement savings rates, active choice enrollment, and automatic enrollment.

The authors study two randomized field experiments and two natural experiments at the US Army. Their focus on a single large employer allows them to compare different policies within the same institutional setting. The new servicemembers in their sample are younger, less educated, and have lower income than the overall US population. As these are characteristics that tend to be associated with low savings, the response to retirement savings interventions in this sample may be indicative of these policies’ effects on low savers more generally.

The authors first examine the effect of “light-touch” email interventions. These include sending behaviorally informed messages that urge servicemembers to “ensure you don’t lose out on a secure future by investing with a Thrift Savings Plan (TSP)” or providing target retirement savings rates by indicating that “many servicemembers like you start by contributing at least X percent of their basic pay into a traditional or Roth TSP account.” They find that these messages raise the contribution rate by 0.5 to 0.8 percentage points, or 9 to 13 percent relative to contribution rates in the control group.

Next, the authors examine an active choice intervention in which new servicemembers at two military bases were required to make a choice either to contribute or not to contribute to a TSP account. This intervention increases the contribution rate by 11 percentage points, doubling the probability of contributing.

In a final intervention, automatic enrollment in the TSP for all new servicemembers was enacted in January 2018 as part of a new military retirement system. This policy raised participation by 79 percentage points, or 10 times the average contribution rate before the policy. Notably, the automatic enrollment had the largest effects on several groups shown to have lower levels of retirement savings and wealth accumulation: individuals who are younger, non-White, unmarried, and not college educated.

In the authors’ analysis of cost-effectiveness, the size of the employer is an important consideration, as fixed costs of implementing each intervention can be spread over more employees at larger institutions. The authors find that active choice programs are the most cost-effective method for small firms, with a cost of about $11 for a new participant and $0.02 for a new dollar of contributions. Automatic enrollment is the most cost-effective method for large and very large organizations, such as the Department of Defense.

This study provides a large-scale scientific replication of the existing literature on retirement savings interventions, evaluating multiple interventions in a common institutional setting. The results suggest that the magnitude of the effect increases with the “behavioral” intensity of the intervention: automatic enrollment has a larger effect than active choice, which has a larger effect than behavioral messaging. The cost-effectiveness analysis suggests that “any firm that expects to have or eventually hire and onboard 600 or more employees will likely find automatic enrollment the most cost-effective program.”

The research reported herein was performed pursuant to grant RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA, any agency of the federal government, or NBER. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof. This project was also supported by grant number T32HS026128 from the Agency for Healthcare Research and Quality. The content is solely the responsibility of the authors and does not necessarily represent the official views of the Agency for Healthcare Research and Quality. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.