Nudge: Improving Decisions About Health, Wealth, and Happiness

Part 3 is dedicated to financial matters and the applicability of choice architecture to wealth. Chapter 9, “Save More Tomorrow,” is about the difficulties people have in saving for retirement and methods for improving long-term savings. Thaler and Sunstein note that such saving is a relatively new problem for people since historically people did not live long enough to retire. They indicate that people still haven’t determined the best ways to plan for retirement and do the appropriate long-term saving.

Thaler and Sunstein discuss “defined benefit plans,” which include the social security system in the United States and early forms of private pensions. These plans confer benefits to workers when they retire. Thaler and Sunstein note that these can be good plans for people who keep the same employer throughout their careers, but they are not as useful for people who switch employers. Since 1980, when the 401(k) defined contribution plan was created, more employers have followed the defined-contribution model. These plans, they write, “stipulate only how much employers and their employees contribute (invest) into a tax-sheltered account in the employee’s name” (181).

The authors make it clear that they do not think people are saving enough for retirement, and they hope that their work will contribute to changing this.