Financial Planning Retirement Planning Research
Retirement: The Power of Tracking
If you’ve used a fitness app, you may have noticed that activity goal reminders motivate you to exercise. Reminders force us to make active choices. Are you okay with not meeting your step goal today? Have you exercised less this month than you did last month? Are your friends working out more often than you are?
Academics have generally embraced the power of doing nothing in 401(k) plans. The Pension Protection Act of 2006 increased the percentage of employees who sock money away for retirement at the default savings rate and 68% of employees now invest in target-date funds (ICI, 2024). Defaulting to passive savings means that more workers save and the least knowledgeable save more and earn a higher rate of return on investments than if they made active choices.1
A recent survey from the American College Granum Center for Financial Security conducted with AGEIST.com finds that people who track their health are also more motivated to save for retirement. This makes sense if the real power of tracking is that it forces us to make an investment in our ability to imagine the future and take control of decisions today that affect how long and how well we will live decades into the future.
Nobel Laureate Gary Becker (1997) believed that the time and effort we spend imagining how decisions today affect future outcomes is an investment. If we spend more time thinking about how our actions today impact, for example, how much money we can spend after retirement or whether we will be physically active in our 70s and 80s, then we can make better decisions about how much to save and exercise. Imagination is a resource that helps us make better decisions.
While imagination helps us recognize the future consequences of our decisions, we might forget about these consequences when we wake up in the morning and follow a routine that doesn’t include exercise. This is because the brain often operates in automatic mode where habits control how we spend much of our day.
Breaking out of habits requires conscious choice. This is where tracking comes in.
Using tracking devices forces a break in our habits. After we wake up and brew a cup of coffee, our tracker reminds us to at least think about going for a run. If you’ve built the imagination capital that allows you to recognize the importance of running today to increase your health and longevity, then you might decide to get some exercise. In other words, imagination capital alone isn’t enough to reach your goals. You need a tool that helps you change habits.
We all face a struggle between what we do today and what we want in the future. In economics, this is referred to as “time inconsistent preferences.” In other words, we may want to save more for retirement, but when we get to work, we don’t walk down to the benefits office to increase our savings rate. We might want to be healthier, but can’t resist choosing a burger instead of a grilled chicken salad at the cafeteria. Smart people who value the future recognize that they need a little help to make better choices in the present.
Effective trackers give us a short-term boost of positivity when we do something that helps us meet long-term goals. They might congratulate us for reaching our step goal or encourage friends to give us kudos for going on a run. The best trackers leverage the power of short-term emotion to motivate small behavioral changes that result in big, long-run improvements toward our goals.
Tracking progress in retirement can also give us a boost as we see our savings grow over time. The positive emotional response we get from seeing our nest egg grow can motivate us to save more. If we never check our balance, we may forget about the importance of savings and investing. Tracking can provide a short-term reward and remind us that we need to stay on track to meet long-term retirement security goals.
Do People Who Track Save More for Retirement?
Yes, quite a bit more. More than half of survey respondents who check their retirement balance daily (13% check daily!) save more than 10% of their income for retirement. Those who check their balance weekly or monthly were about 30% more likely to save 10% of their income for retirement than those who check quarterly or annually, and only 10% of those who never checked their balance saved more than 10%.
Save More Than 10% for Retirement
How often do you check your retirement savings balance?
Is tracking associated with taking the time to estimate how much savings is needed to meet retirement spending goals? Yes, more than 80% of respondents who check their balance daily, and 67% of those who check their balance at least every month have made the effort to estimate how much they need to save to meet retirement spending goals. Only 14% of those who never check their balance have estimated how much they’ll need to save to meet retirement spending goals. Those who track progress have also taken the time to imagine how much they will need to save to meet their future spending goals.
Have Estimated Savings Needed to Meet Retirement Spending Goals
How often do you check your retirement savings balance?
Those who track their retirement balance are also more likely to track their health. Tracking health using a wearable device (such as an Apple watch, Oura ring, Fitbit, etc.) is strongly associated with tracking one’s retirement savings balance. Both health and retirement savings are short-run behaviors that lead to positive long-term outcomes. It’s not surprising that those who make an effort to measure progress toward health goals also track progress in their finances.
Track Health Using a Wearable?
How often do you check your retirement savings balance?
Do those who follow a specific plan or health app save more for retirement? The results are striking – just over half of those who follow a specific workout plan or app save more than 10% of their income for retirement. Only a quarter of those who don’t follow a workout routine save at least 10%. Those who have created a habit of exercising have also made a habit of saving 10% of their income for retirement.
Save More Than 10% for Retirement
Do you have a workout routine?
Before diving into retirement planning as a math problem, it might be more important to help a client imagine how they’re going to live in retirement, what they hope to spend money on, and how this spending will open up opportunities for travel, moving into a dream home, or achieving financial security or a legacy goal. Conversations that build imagination capital can help individuals see how small choices today can lead to a better life in the future.
Likewise, people save more when they track short-term progress. Seeing one’s savings rise over weeks and months can trigger positive emotions and a feeling of accomplishment. In fact, there appears to be similarities in tracking health and the propensity to create specific short-term plans and saving more for retirement. Tracking motivates active choices in both health and retirement that lead those who value the future to be rewarded for making decisions in the present.
There may be a dark side of tracking that doesn’t show up in these results. In March 2020, workers who managed their retirement investments were far more likely to phone up their recordkeeper after the market dropped to sell stocks after they fell in value. Target-date fund investors were generally unaware of the drop and didn’t make a change in their investments. Access to an advisor, however, increased the probability of initiating contact and significantly reduced the likelihood of an ill-timed trade. If frequent trackers are more aware of a loss, they’ll likely benefit more from the counsel of an advisor who can help them manage their emotions and maintain savings habits to meet long-term goals.