How Employers Can Help Employees Offset Emotional Decisions About Retirement

We know that emotion plays a role in money, and therefore retirement. Here are a few ways employers can help employees offset less-than-rational emotion and thus make better decisions about their retirements.

Behavioral economics have been the subject of much discussion in recent years, as you know. Money is a deeply personal subject for most people, and we often view it as a big factor in our security. That’s why it is difficult to get people to take a rational, rather than emotional, look at their own financial behaviors. There are a few areas where employers and plan providers can help employees make decisions that are more rational, though. PIMCO recently published an article1 with four suggestions you may be able to use.

First, make sure employees receive education about the consequences of taking Social Security benefits at the earliest possible age, and the benefits of beginning payments at (or after) full retirement age.

Second, consider including education about annuities in your pre-retirement sessions. These can help overcome fears about running out of money. Such fear may lead people to underspend in the early years of their retirement; PIMCO claims that 18 years into retirement many people have spent only 20% of their nest egg. For retirees who remain uncomfortable with annuities, PIMCO recommends education about how a conservative asset allocation may be used to provide some relative stability and hedge against longevity risk. Read the PIMCO article for more useful information.