With its launch of the new 401(k) feature How Do I Compare, Putnam Investments allows plan participants to compare their progress in saving for retirement with their peer group and top-tier savers. This tool takes advantage of employees natural inclination to keep up with the Joneses by applying this psychology to their nest egg.
The financial firm hopes this comparison feature will increase participants contribution rates and help employees track their way to a financially-stable retirement. Putnams How Do I Compare will be integrated into the firms award-winning Lifetime Income Analysis Tool, which projects participants current savings into future monthly retirement income and offers actionable steps to increase savings. The new comparison lens is expected to be available within all Putnam 401(k) plans in the coming months.
The Putnam initiative draws on social comparison behavioral theory, which holds that individuals are motivated by comparisons with peers who are top performers. Using data drawn from all participants in Putnam 401(k) plans, theHow Do I Compare tool will allow employees in these defined contribution plans to measure their savings rate and potential income replacement in retirement with peers, based on age, salary, gender and other criteria.
Importantly, the employees can see how they compare to the top savers in their peer group. Ultimately, the feature allows the participant to gauge the impact of changes to savings rates and make immediate adjustments, if desired.
Research shows that social comparisons can have a powerful effect on changing behavior, says Edmund F. Murphy III, Head of Defined Contribution, Putnam Investments. We believe this concept has tremendous application in the retirement savings space to potentially help raise contribution rates.
As the realm of financial wellness improves with more sophisticated technology and more attractive user tools, features like predictive analysis, cost estimators and cost comparisons will become key in guiding participants to make better plans to manage finances, budget and save for retirement.
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