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Can the Framing of Retirement Impact How We Prepare for It?

Motivating people to save for retirement doesn’t have a “one size fits all” solution.

We use a wide range of strategies to bolster our retirement preparation--for instance, maximizing our 401(k) contributions, automating our savings, and setting clear goals for our in-retirement lifestyle. Can the language we use to think about retirement be another?

To find out, I designed a series of three experiments that framed retirement preparation as either “contributing to” one’s retirement, “saving for” one’s retirement, or “investing in” one’s retirement. Because “retirement preparation” could be defined in many ways, I considered several different measures across the three studies. 

The first experiment assessed how people wish to spend their earnings during their working years compared with how they plan to spend during their retirement. I used a measure developed by other researchers in which the preference to spend more during retirement than during one's working years reflects the highest level of retirement preparation. I also assessed people’s intentions to increase their retirement deposit in the next month, as this intention reflects greater retirement preparation.

The second and third experiments used an asset-allocation task in which participants distributed a hypothetical $1,000 across five categories, one of which was a retirement fund (the other categories were: spending on yourself, spending on someone else, paying debt, and putting it in a savings account). In the third experiment, I also considered how optimism about reaching a successful retirement relates to how one is preparing for retirement.

So, where does the framing of retirement preparation come into play? In the first two experiments, I embedded the frame in a passage that outlined some steps people can take to prepare for retirement (people also rated the text on features such as the quality of advice).

In the third experiment, the manipulation was embedded in the asset-allocation task itself: People either “invested,” “contributed,” or “saved” any part of a hypothetical $1,000 in a retirement fund. (I did not adjust the wording of the other allocation categories.)

The participants in all experiments were U.S. adults recruited from MTurk. You can find more details on the methodology and the results in the main paper. Let’s dive into some of the key findings from the study and what they mean for advisors.

1. It’s not the frame--it’s how you use it.

The main finding was not finding anything at all. That is, the frame was unrelated to any measure of retirement preparation in all three experiments. That is not to say, however, that the passages themselves had no impact at all.

In fact, regardless of age and income, participants who believed that the passages offered quality advice took that advice home with them. To note, although participants found the “invest” frame to be of lesser--though still relatively high--quality than the other two frames in the first study, no differences emerged in the second study. For example, ratings of the passage’s quality were associated with about 1.4% of the variance in the money one allocated to a retirement fund in the asset-allocation task.

What does this mean for advisors? Be cognizant of your clients’ subjective response to your advice. As this research shows, clients are more likely to follow the advice they personally find helpful and informative.

2. Optimism has its benefits.

The third experiment revealed that optimism about retirement played a unique role in shaping retirement preparation. In fact, this variable accounted for about 2.6% of the variance in the portion of the hypothetical $1,000 that one allotted to a retirement fund, regardless of other explanations such as age and income.

What does this mean for advisors? Monitor your clients’ optimism about their retirement. Even seasoned savers have potential to hit a roadblock and lose track of their goals if their optimism about retirement dips.