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What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making

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Author Info
Stevens, Ann Huff (U of California, Davis)
Chan, Sewin (New York U)

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Abstract

This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives. While virtually all recent empirical work has relied on administrative- or employer-reported data, we document an important role for self-reported pension data in determining retirement behavior. Well-informed individuals are five times more responsive to pension incentives than the average. In contrast, ill-informed individuals respond to their own misperceptions of the incentives rather than being unresponsive to any measured incentives.

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Paper provided by University of California at Davis, Department of Economics in its series Working Papers with number 05-18.

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Date of creation: Oct 2004
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Handle: RePEc:ecl:ucdeco:05-18

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January. [Downloadable!] (restricted)
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  2. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," NBER Working Papers 5667, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," NBER Working Papers 8655, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity versus Predictive Validity," NBER Chapters, in: Topics in the Economics of Aging, pages 21-60 National Bureau of Economic Research, Inc. [Downloadable!]
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  6. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 120-137 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September. [Downloadable!] (restricted)
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  8. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," Working Papers wp002, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  10. Sewin Chan & Ann Huff Stevens, 2002. "How Does Job Loss Affect the Timing of Retirement?," NBER Working Papers 8780, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier. [Downloadable!] (restricted)
  12. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1307-1333, July. [Downloadable!] (restricted)
  13. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," NBER Working Papers 8229, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Esther Duflo & Emmanuel Saez, 2002. "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment," NBER Working Papers 8885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Steven Haider & Mel StephensJr., 2006. "How Accurate are Expected Retirement Savings?," Working Papers wp128, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  2. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
  3. Annamaria Lusardi, 2006. "Planning and Financial Literacy: How Do Women Fare?," Working Papers wp136, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  4. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers wp114, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  5. Irena Dushi & Marjorie Honig, 2008. "How Much Do Respondents in the Health and Retirement Study Know About Their Tax-deferred Contribution Plans? A Crosscohort Comparison," Working Papers wp201, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  6. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  7. Hannu Piekkola & Matthias Deschryvere, 2004. "Retirement Decisions and Option Values: Their Application Regarding Finland," Discussion Papers 951, The Research Institute of the Finnish Economy. [Downloadable!]
  8. Charles Brown, 2006. "The Role of Conventional Retirement Age in Retirement Decisions," Working Papers wp120, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  9. Leora Friedberg & Michael T. Owyang, 2004. "Explaining the evolution of pension structure and job tenure," Working Papers 2002-022, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  10. John W. Budd, 2008. "Does Employee Ignorance Undermine Shared Capitalism?," NBER Working Papers 14236, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Dalen, H.P. van & Henkens, K. & Hershey, D.A., 2008. "Are Pension Savings sufficient? Perceptions and Expectations of American and Dutch Workers," Discussion Paper 2008-58, Tilburg University, Center for Economic Research. [Downloadable!]
  12. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Financial Literacy and Planning: Implications for Retirement Wellbeing," DNB Working Papers 078, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  13. Adeline Delavande & Robert Willis, 2007. "Managing the Risk of Life," Working Papers wp167, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  14. Marianne Bertrand & Dean Karlin & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," NBER Working Papers 11892, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Douglas A. Hershey & Kène Henkens & Hendrik P. van Dalen, 2006. "Mapping the Minds of Retirement Planners," Tinbergen Institute Discussion Papers 06-038/1, Tinbergen Institute. [Downloadable!]
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