The Future of Retirement: AI, Automation and Behavioral Finance

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5 minute read time.

What if the secret to a secure retirement wasn’t about ironclad willpower or constant sacrifice, but instead, about smart planning, automation and well-placed nudges? That’s the philosophy driving much of behavioral economist Shlomo Benartzi’s work. A UCLA professor and co-creator of the groundbreaking Save More Tomorrow program, Benartzi has spent his career figuring out how to work with – rather than against – human behavior.

Benartzi joined “Your Money Map” to explain how the same principles that transformed retirement saving could also help retirees spend more wisely once they leave the workforce.

THE GENIUS OF “SAVE MORE TOMORROW”

Pioneered by Bernartzi and Nobel Prize-winning economist Richard Thaler, Save More Tomorrow was designed to make saving for retirement almost effortless. The program is built on three simple ideas:

  • Committing now, saving later: Participants agree today to increase their savings rate in the future, sidestepping “present bias,” which is our tendency to prioritize immediate comfort over long-term benefits.
  • Linking increases to pay raises: Contributions only rise when income increases.
  • Staying the course unless you opt out: Enrollment is automatic unless you opt out.  Once enrolled, workers remain in the program unless they actively choose to leave.

As Benartzi explains, these steps harness inertia instead of fighting it. “I think the main thing is we didn’t fight human behavior,” he shares. “We ended up accepting it and working with it.” The approach was such a success that in 2006, Congress baked its principles into the Pension Protection Act, leading thousands of employers to adopt it. Today, it’s estimated that Save More Tomorrow has helped roughly 15 million Americans meaningfully grow their retirement savings.

But even with that success, a major gap remains – access. Nearly half of U.S. private sector workers don’t have a workplace retirement plan at all. That leaves millions, including gig workers and freelancers, without the very structure that makes automated savings possible. “How do we bring that kind of methodology, behavioral insight and automation of savings to the Uber driver who doesn’t have a 401(k) plan?” asks Benartzi. “I think that’s where we have to take these things, especially given that more and more people are part of the gig economy.”

Sholomo Benartzi, Behavioral Economist

BEYOND SAVING: CRACKING THE RETIREMENT SPENDING PUZZLE

Of course, saving is only half the battle. Once retirement begins, the challenge flips. It’s no longer about accumulating money, but about spending it down wisely. And here, the psychology gets even trickier.

Some retirees spend their nest eggs too quickly, underestimating how long their money needs to last. Others do the opposite, spending so little that it hinders their quality of life. Benartzi tells the story of a multimillionaire client who rationed his prescription medication, taking it only three days a week out of fear he’d run out of money to pay for more. “Most of us spend too much as human beings, but there’s a segment that actually spends too little,” Benartzi shares.

The core problem is that after decades of receiving a predictable paycheck, saving and spending within clear limits, they’re suddenly asked to transform a lump sum into a sustainable income stream. “We tell them to figure out how to create a paycheck, and they don’t even know what needs to go into the calculations,” says Benartzi.

WHY “ONE-SIZE-FITS-ALL” DOESN’T WORK

When it comes to spending in retirement, Benartzi argues that rules of thumb simply don’t cut it. Unlike younger savers who may share broadly similar goals and circumstances, older adults accumulate enormous differences over time. Health conditions, marital histories, family obligations and personal preferences all shape what “enough” looks like. “We don’t only accumulate assets over a lifetime, we accumulate differences, and that requires a personalized solution,” stresses Benartzi.

As he points out, some retirees may want to front-load spending, traveling and making memories with loved ones while they’re healthy. Others may prefer to hold back, preserving resources for later years. Still, others may prioritize leaving a legacy for children or grandchildren. What they all share is the need for tools and guidance that can adapt to these differences.

PENSIONPLUS: A NEW APPROACH

That’s the challenge Benartzi is working on tackling with his upcoming initiative, PensionPlus. The program is designed to recreate the simplicity of a paycheck in retirement, using existing 401(k) and IRA assets without retirees having to move money or give up control of their accounts.

Instead, it will aim to generate a stream of guaranteed monthly income, with options to adjust for inflation, add bonuses when their portfolio performs well and optimize Social Security timing.

Another approach that is tried and true? Protected income via annuities. With the extreme economic uncertainty and volatile markets over the past year, it’s not surprising that annuity sales reached a record high last quarter as more Americans turned to them to protect their retirement savings and cover their basic monthly expenses – things like a mortgage, rent, utilities, groceries, or transportation.

A.I. AND THE FUTURE OF FINANCIAL PLANNING

As artificial intelligence (A.I.) gains traction, its role in the financial industry is expanding. Benartzi notes that while these tools can be powerful, they’re not a replacement for financial professionals—rather, the two can complement each other, much like doctors are now leveraging A.I. in medicine.

This partnership is especially valuable when it comes to creating more personalized financial plans. “We should take those lessons as an industry to adapt to the new reality faster, because financial advisors do not have the scale and the capacity to cater to all Americans,” he explains. “If we want to help them help more Americans, we have to give them the technology so they can actually scale the advice and provide it to many more people.”

That said, Benartzi urges caution for those turning to A.I. for financial advice. While it’s a useful way to learn and gather information, it’s not the right tool for building a comprehensive financial plan, as it can’t account for factors such as health, inflation, or other personal circumstances. “People use A.I. more and more for financial advice,” he says. “Too much is at stake. You can’t do it.”

THE BOTTOM LINE

Benartzi believes the future of retirement planning won’t be built on willpower or generic advice. It will come from blending behavioral finance with smarter technology – automating good decisions, personalizing income strategies and making the complex math of retirement planning simple enough for real people to act on.

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