Behavioral Finance Explains Why You Aren’t Saving

Americans are not saving enough for retirement. Behavioral finance attempts to answer why there is a lack of retirement savings and, more importantly, makes recommendations as to how to fix the deficit.

Saving is not easy. There are competing demands in raising children and purchasing a home versus future retirement needs. All Americans would like to retire well, but few feel confident that they will.

The recent winner of the Nobel Memorial Prize in Economic Sciences, Richard Thaler, a behavioral economist, explains how we can make decisions to nudge us toward a better retirement outcome. Ultimately, he found that the easier a decision is to make, the more likely we are to make it.

Historically, individuals had the safety net of company pension plans and Social Security. These plans did not rely on individual contributions for success but rather on employer contributions and mandated payroll deductions. This allowed the employee to have retirement savings with no effort.

Today, very few pension plans exist, and Social Security is not sufficient to provide a quality retirement.

Employer-sponsored 401(k) plans were designed to supplement pension plans, but have ultimately replaced them altogether. This puts the responsibility on the employee to build their retirement savings. Our retirement planning decisions and behavior can improve our chances for a better retirement.

Below are some behavioral finance tips to help you avoid some of the behavioral pitfalls:

  • Automate your retirement savings: Enroll in your employer plan and contribute more than just the amount required to receive the match. You can do this in gradual steps by increasing your contributions each year by one percent or each time you receive a raise. The goal would be to save 15 percent of your income for retirement (including the employer match). If your employer doesn’t sponsor a retirement plan, set up an automatic investment plan that allows monthly contributions through a savings or checking account into a traditional or Roth IRA.
  • Returns cannot make up for lack of saving: Don’t take unnecessary risk in your investments in an attempt to make up for lost time. Your savings rate has a much greater impact on your ability to retire well than the return on your investments.
  • Live below your means: Understand where your money is going by tracking your expenses through an online program like, Quicken, or The ability to live below your means is one of the greatest indicators of your ability to retire well. If you have been saving the recommended 15 percent of your income for retirement, then you only have to replace 85 percent of your income in retirement. This percentage goes down even further if you have been living below your means all along.
  • Remember your retirement savings is for retirement: Avoid accessing your retirement money until you need to supplement your income in retirement. Human nature says if we can access it, we will. There will be reasons why it might seem like a good idea to use your retirement savings to help you in a financial bind, but there is an opportunity cost in doing so. You not only reduce your savings but you also will lose the potential for future growth of the money you take out.
  • Do not follow the herd: Investing when the markets are doing well feels easier than when the markets are doing poorly, but the goal is to invest low and sell high. You can achieve this goal by being a long-term investor that buys during both good and bad markets. Resist the urge to curb the pain temporarily by attempting to market time or sell your investments when there is a market pullback or market decline. It might feel good at the time, but this behavior harms your ability to achieve a quality retirement.
  • Watch less news: I am not suggesting that you become less aware of what is happening in the world, but you do not need to be exposed to the news all day long. Studies show less media exposure reduces anxiety.
  • Look at your investment balances less often: Thaler found that the investor that looked more frequently at their account balances felt the loss more significantly than the investor that looked less often despite the actual loss being the same. Online access allows us to look at our investment balances daily, but my advice is to check your balances less often or even quarterly when statements are generated.
  • Stay positive: A quality retirement is attainable, as long as you are aware of the behavioral pitfalls, and take charge of your financial plan. The suggestions above can help you get on track for a more secure retirement.


The responsibility for your retirement savings is yours, but you do not have to navigate it alone. Determining how to save for the future can be daunting. Working with a Certified Financial Planner™ professional can help provide clarity and comfort in the knowledge that you have a plan and you are on track. These professionals help you create a financial plan that helps you balance short-term needs along with long-term needs to build your retirement savings. They can “nudge” you to stay the course and help you create a financial plan that helps you achieve a quality retirement.

Meghan Phillips Dykstra CFP® is an investment advisor representative with Tandem Wealth Management at 900 E. Front Street, Suite 200, in Traverse City. She can be reached at (231) 486-6188;; or Securities offered through Securities America, Inc. Member FINRA/SIPC, Meghan P. Dykstra CFP® registered representative. Advisory services offered through Securities America Advisors, Inc., Tandem Wealth Management, LLC, and Securities America are separate companies.