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Retirement Savings: A Tale of Decisions and Defaults

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  • Loretti Isabella Dobrescu
  • Xiaodong Fan
  • Hazel Bateman
  • Ben Rhodri Newell
  • A. Ortmann
  • Susan Thorp

Abstract

This study develops a structural dynamic life†cycle model to examine the behavior of members of an industry†wide pension fund to assess both the prevalence of defaults and their impact on retirement savings. We estimate the model using the simulated method of moments on administrative data from a large Australian pension fund. Our results show that default settings strongly influence wealth accumulation. Such settings are also highly persistent, both over time and across decisions. Overall, the findings suggest that if defaults (particularly the irreversible ones) are not carefully designed, retirement savings can be severely affected.

Suggested Citation

  • Loretti Isabella Dobrescu & Xiaodong Fan & Hazel Bateman & Ben Rhodri Newell & A. Ortmann & Susan Thorp, 2018. "Retirement Savings: A Tale of Decisions and Defaults," Economic Journal, Royal Economic Society, vol. 128(610), pages 1047-1094, May.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:610:p:1047-1094
    DOI: 10.1111/ecoj.12447
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    Citations

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    Cited by:

    1. Jennifer Alonso Garcia & Hazel Bateman & Johan Bonekamp & Ralph Stevens, 2017. "Retirement drawdown defaults: the role of implied endorsement," ULB Institutional Repository 2013/300025, ULB -- Universite Libre de Bruxelles.
    2. Bernal, Noelia & Olivera, Javier, 2020. "Choice of pension management fees and effects on pension wealth," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 539-568.
    3. Laffan, Kate & Sunstein, Cass & Dolan, Paul, 2021. "Facing it: assessing the immediate emotional impacts of calorie labelling using automatic facial coding," LSE Research Online Documents on Economics 112453, London School of Economics and Political Science, LSE Library.
    4. Jennifer Alonso‐García & Hazel Bateman & Johan Bonekamp & Ralph Stevens, 2021. "Spending from Regulated Retirement Drawdowns: The Role of Implied Endorsement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 810-847, July.
    5. Geoffrey Kingston & Susan Thorp, 2019. "Superannuation in Australia: A Survey of the Literature," The Economic Record, The Economic Society of Australia, vol. 95(308), pages 141-160, March.
    6. Wei-Ting Pan, 2016. "The Impact of Mandatory Savings on Life Cycle Consumption and Portfolio Choice," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 32, July-Dece.
    7. Gerrans, Paul & Moulang, Carly & Feng, Jun & Strydom, Maria, 2018. "Individual and peer effects in retirement savings investment choices," Pacific-Basin Finance Journal, Elsevier, vol. 47(C), pages 150-165.
    8. Barbara Chambers & Ruth Walker & Jun Feng & Yuanyuan Gu, 2021. "The silver tsunami: an enquiry into the financial needs, preferences and behaviours of retirees," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 645-687, March.
    9. Peter A. Forsyth & Kenneth R. Vetzal, 2019. "Defined Contribution Pension Plans: Who Has Seen the Risk?," JRFM, MDPI, vol. 12(2), pages 1-27, April.
    10. Alison Preston & Robert E. Wright, 2023. "Gender, Financial Literacy and Pension Savings," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 58-83, March.
    11. Bingzheng Chen & Peiyun Deng & Xiaodong Fan, 2022. "Effect of compulsory education on retirement financial outcomes: evidence from China," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(4), pages 958-989, October.
    12. Blake, David & Duffield, Mel & Tonks, Ian & Haig, Alistair & Blower, Dean & MacPhee, Laura, 2022. "Smart defaults: Determining the number of default funds in a pension scheme," The British Accounting Review, Elsevier, vol. 54(4).
    13. Wei-Ting Pan, 2016. "The Impact of Mandatory Savings on Life Cycle Consumption and Portfolio Choice," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2016.

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