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Planning and saving for retirement

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  • Sulka, Tomasz

Abstract

In this paper, I analyse the interplay between costly planning and imperfect self-control in the context of a dynamic retirement saving problem. For an exogenous planning horizon, poor self-control leads to fewer periods with positive savings and to under-accumulation of pension wealth. Consequently, an agent characterised by poor self-control postpones planning for retirement, or does not take action at all, if the cost of planning is high enough. The agent’s level of income emerges as another determinant of the planning decision, and thus the wealth-to-income ratio can be income dependent, even with CRRA preferences. Considering a mandatory pension scheme with rigid contribution and decumulation schedules, I demonstrate how the extent of crowding out of private savings and the associated welfare effects vary with the agent’s propensity to plan actively.

Suggested Citation

  • Sulka, Tomasz, 2023. "Planning and saving for retirement," European Economic Review, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:eecrev:v:160:y:2023:i:c:s0014292123002374
    DOI: 10.1016/j.euroecorev.2023.104609
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    More about this item

    Keywords

    Planning; Cognitive costs; Self-control; Dual-self; Pensions; Retirement;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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