Save More Tomorrow (SMarT)
Commit now to save more later by linking increases to future raises
Save More Tomorrow is a behavioral program that overcomes the three biggest psychological barriers to saving: loss aversion (people hate seeing their paycheck shrink), present bias (people discount future benefits), and inertia (people stick with whatever they are currently doing). It does this by asking people to commit in advance to allocating a portion of future salary increases toward retirement savings.
The genius is that participants never experience a reduction in take-home pay. Each raise is partially diverted to savings before the person adapts to the higher income. The commitment is made when willpower is high (during a planning session, not at the moment of sacrifice), and inertia works in the saver's favor because increases continue automatically unless the person opts out.
The program was first tested at a mid-size manufacturing company where a financial advisor had been unable to convince employees to save more. After implementing SMarT, participants nearly quadrupled their savings rates over four annual raises, from about 3.5 percent to roughly 13.6 percent of income.
- People find it far easier to accept future sacrifices than present ones due to present bias
- Loss aversion makes reducing current income psychologically painful, but never receiving a portion of a raise feels painless
- Inertia is a powerful force that can work for you: once enrolled, people rarely opt out of automatic savings increases
- Commitment made in advance, when willpower is strong, is more reliable than decisions made in the moment of temptation
- Small, gradual increases accumulate into dramatically different outcomes over time
- Approach people well before their next raiseThe commitment conversation should happen during a calm planning period, not when people are already spending their current income. Present the opportunity as a way to build wealth without ever feeling a pay cut. Timing matters because willpower and good intentions are highest when the sacrifice is abstract and future-oriented.Pro tipPair this with a retirement readiness assessment so people can see the gap between where they are and where they need to be.
- Get a commitment to allocate a percentage of future raisesAsk participants to commit to directing a specific portion (typically one-third to one-half) of each future pay raise into their retirement savings. The key is that their take-home pay still goes up with each raise; it just goes up less than it otherwise would. They never see a reduction in their current paycheck.WarningDo not ask people to reduce their current contribution rate. The entire design depends on the increase coming from money they have not yet received.
- Automate the increasesSet up payroll systems so that the savings rate increase happens automatically each time a raise takes effect. Automation is critical because it harnesses inertia: once enrolled, the vast majority of people stay in the program. Manual re-enrollment at each raise would dramatically reduce participation.
- Cap the rate and preserve the opt-outSet a maximum savings rate (often the employer match limit or a reasonable cap like 15 percent) at which automatic increases stop. Always preserve the participant's right to opt out or reduce their rate at any time. This maintains the libertarian aspect: people remain free to choose.Pro tipMost people never opt out, but knowing they can makes them more willing to enroll in the first place.
A financial advisor had tried and failed to convince employees at a mid-size manufacturing company to increase their retirement savings. Thaler and Benartzi introduced the SMarT plan, asking employees to commit a portion of each future raise to savings. The program was offered to employees who had just been advised to save more but chose not to increase their current contribution.
The core ideas of SMarT were incorporated into federal legislation with bipartisan support from both conservative and liberal senators. The law encouraged automatic enrollment and automatic escalation features in employer retirement plans.
Richard Thaler and Shlomo Benartzi designed the program after recognizing that traditional financial advice was failing because it asked people to accept an immediate reduction in their paycheck, triggering powerful loss aversion. They realized that by shifting the commitment to the future and tying it to raises, they could align the program with human psychology rather than fighting against it.
The first implementation came when a financial advisor at a manufacturing company had tried everything to get employees to save more. Thaler and Benartzi proposed the SMarT plan as a last resort. It was so successful that elements of the approach were later incorporated into the Pension Protection Act of 2006, receiving bipartisan support in Congress.