Despite agreement among experts that many consumers should place a high value on life annuities and related products that insure against longevity risk, few consumers voluntarily annuitize their retirement savings. This brief summarizes evidence that consumers’ aversion to annuities is not a fully rational phenomenon. Research finds that framing, i.e., how financial products are presented to consumers, can significantly affect respondents’ preferences among competing products.
This paper examines the two sets of factors controlled by a worker and affecting a person’s Social Security benefit. The first set of factors affect a worker’s base benefit, known as the Primary Insurance Amount (PIA), and include years of coverage in the Social Security system and an individual’s history of taxable earnings under the Social Security system. The second set of factors pertain to changes in the primary insurance amount, including early retirement reductions, delayed retirement credits, the earnings test, and the tax on benefits.
This paper examines two studies of investment risk taking among higher education employees in their institution-sponsored retirement savings plans. Risk taking is a complex psychological and behavioral process. The first study examined direct correlates of risk taking. The second study modeled the mediated effects of dispositions, opportunity perception, experience, inertia, and demographics, and the direct effects of an attitudinal risk preference and knowledge of investment principles on risk taking in retirement savings.
This two phase study examined how to motivate women to save for retirement. The quantitative first phase validated findings regarding the existence of distinct personality types among women regarding retirement saving. In the second phase, focus groups were conducted with the five retirement personality types to identify messages that might motivate them to invest for retirement. Focus groups revealed more similarities than differences across personality types; there may actually be greater differences between married and single women.
This paper examines how supplemental retirement savings decisions of higher education faculty are influenced by the generosity and structure of an individual’s primary retirement plan. Standard economic models of saving predict than an extra dollar contributed to an employee’s primary defined contribution account will reduced the supplemental savings of that employee by one dollar, regardless of the source (employer or employee) of the pension contribution. A behavioral perspective suggests that people may treat them differently, however.
There are several factors that prevent employees from taking advantage of employer-provided pension plans. In this project, a social marketing approach was used to develop a comprehensive, cost-effective plan to improve participation in and contribution to Supplementary Retirement Accounts (SRAs.) By specifically targeting subgroups, the project was able to help identify and overcome key obstacles to savings.
A growing body of research suggests that savings decisions are affected by a wide range of influences that play no role in a conventional neoclassical model of savings behavior, including framing effects, default effects, and inattention.
Increasing the number of options available to an individual is generally seen as beneficial. However, sufficiently large choice sets can also cause individuals to focus on all the things that can go wrong, lose the ability to distinguish between options, and otherwise negatively impact the choosing process. Research has found a negative effect of the number of offered funds on 401(k) participation rates. Further analysis has revealed that as the number of funds rises, participants become more likely to avoid stocks in favor of money market and bond funds.
According to standard economic models, a risk-averse consumer who faces uncertainty about length-of-life should place a high value on life annuities that provide guaranteed income for life. Yet numerous studies show that few consumers voluntarily annuitize their retirement savings. As a whole, however, the literature has failed to find a sufficiently general explanation of consumer aversion to annuities. This paper suggests that a psychologically richer model of consumer behavior can explain under-annuitization.