Most Americans have a difficult time saving for retirement. And there are some big structural reasons for that, including income inequality and the fact that far too many people don't earn a living wage or simply struggle to get by due to high costs of living.
However, recent research suggests there could actually be a much more basic -- and much easier to correct -- reason more people aren't investing for the future: decision paralysis, which prevents them from doing so. Specifically, far too many Americans can't decide how much to save, so they do nothing at all.
Could a suggested savings amount help Americans be better prepared for the future?
According to a recent study examining the savings habits of military members, those who are urged to contribute a specific percentage of income to an employer-sponsored retirement savings account are significantly more likely to make contributions. In fact, the mere suggestion of how much to save upped the chances a service member would enroll in a workplace retirement plan by 26%. Providing a suggested contribution amount had a much more profound impact than simply offering general encouragement to sign up, which increased plan participation by just 15%.
Surprisingly, it didn't matter what specific amount was suggested -- just that a plan of action was provided. However, the effects were most pronounced when an exact number was offered, rather than a range. When participants were urged to contribute either 3%, 4%, or 6%, these limited options served as a major deterrent when participants were forced to choose.
Those provided with a specific suggested contribution amount were also more likely to invest a larger portion of their paycheck than individuals who didn't receive any extra urging or those who received general messages about signing up but no recommended contribution rate.
The one big drawback to this research is that contribution suggestions and messages were sent via email, so it's not clear how many were opened. However, the study authors indicated the data clearly showed that providing a suggested contribution rate made a statistically significant difference in plan participation, even if only a very small percentage of emails were actually read.
What can you do to get started?
If you aren't already investing for retirement, you don't need an email from researchers telling you the amount to save -- even if it may feel that way. If decision paralysis or a lack of knowledge about your retirement savings goals is holding you back, you can fix that problem today.
There are a few ways to set a personalized retirement savings goal. But if you don't feel like doing that right now, don't wait to start investing until you've done so. Instead, begin investing in your 401(k) with the goal of saving at least enough to secure all matching funds your employer provides (if any). Or if you don't have a match or aren't using a workplace plan, begin investing 10% of your income (or as close to that amount as you can afford) in an IRA or other tax-advantaged plan.
Obviously, figuring out exactly what you need to save for retirement is your best course of action. But if decision paralysis is preventing you from acting, you now have no excuse since you've been given a number.