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Do Income Projections Affect Retirement Saving?

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  • Gopi Shah Goda
  • Colleen Flaherty Manchester
  • Aaron Sojourner

Abstract

Americans’ retirement security increasingly depends on how much they save during their working years. One impediment to making good saving decisions may be a lack of knowledge on how saving translates into income in retirement. To address this issue, the U.S. Congress has considered whether to require 401(k) plans to project the value of a lifetime annuity that the participant could purchase at retirement given his current savings. By explicitly showing the connection between saving and income in retirement, the hope is that workers will generally make better saving decisions. This brief is based on a recent field experiment, conducted with employees of the University of Minnesota, which tested the effect of retirement income projections on saving decisions. The brief proceeds as follows. The first section describes the experimental treatments and the methodology used to analyze the results. The second section presents the results, which address three specific questions: 1) Did subjects receiving the treatments change their saving and by how much? 2) Was any change random or did the treatments improve subjects’ knowledge and confidence? and 3) Did personal characteristics influence the saving decisions? The final section concludes that providing individuals with retirement income projections, along with related information on retirement planning, could modestly increase saving at low marginal cost.

Suggested Citation

  • Gopi Shah Goda & Colleen Flaherty Manchester & Aaron Sojourner, 2013. "Do Income Projections Affect Retirement Saving?," Issues in Brief ib2013-4, Center for Retirement Research.
  • Handle: RePEc:crr:issbrf:ib2013-4
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    File URL: http://crr.bc.edu/briefs/do-income-projections-affect-retirement-saving/
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    References listed on IDEAS

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    Cited by:

    1. Mathias Dolls & Philipp Doerrenberg & Andreas Peichl & Holger Stichnoth, 2016. "Do Savings Increase in Response to Salient Information about Retirement and Expected Pensions?," NBER Working Papers 22684, National Bureau of Economic Research, Inc.
    2. Robert L. Clark & Jennifer A. Maki & Melinda Sandler Morrill, 2014. "Can Simple Informational Nudges Increase Employee Participation in a 401(k) Plan?," Southern Economic Journal, Southern Economic Association, vol. 80(3), pages 677-701, January.
    3. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    4. Jeffrey B. Liebman & Erzo F. P. Luttmer, 2015. "Would People Behave Differently If They Better Understood Social Security? Evidence from a Field Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 275-299, February.
    5. Tim Kaiser & Lukas Menkhoff, 2017. "Does Financial Education Impact Financial Literacy and Financial Behavior, and If So, When?," World Bank Economic Review, World Bank Group, vol. 31(3), pages 611-630.
    6. Levy, Matthew R. & Tasoff, Joshua, 2017. "Exponential-growth bias and overconfidence," LSE Research Online Documents on Economics 68881, London School of Economics and Political Science, LSE Library.
    7. Matthew R Levy & Joshua Tasoff, 2016. "Misunderestimation: exponential-growth bias and time-varying returns," Economics Bulletin, AccessEcon, vol. 36(1), pages 29-34.
    8. Margaret Miller & Julia Reichelstein & Christian Salas & Bilal Zia, 2015. "Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature," World Bank Research Observer, World Bank Group, vol. 30(2), pages 220-246.
    9. Gopi Shah Goda & Matthew R. Levy & Colleen Flaherty Manchester & Aaron Sojourner & Joshua Tasoff, 2015. "The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings," NBER Working Papers 21482, National Bureau of Economic Research, Inc.
    10. Jeffrey R. Brown, 2014. "Income as the Outcome: How to Broaden the Narrow Framing of U.S. Retirement Policy," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 17(1), pages 7-16, March.
    11. Sandro Ambuehl & B. Douglas Bernheim & Annamaria Lusardi, 2014. "A Method for Evaluating the Quality of Financial Decision Making, with an Application to Financial Education," NBER Working Papers 20618, National Bureau of Economic Research, Inc.
    12. Kai Yuan Kuan & Mark R. Cullen & Sepideh Modrek, 2015. "Racial Disparities in Savings Behavior for a Continuously Employed Cohort," NBER Working Papers 20937, National Bureau of Economic Research, Inc.
    13. Lunn, Pete & McGowan, Féidhlim, 2018. "Supporting Decision-Making in Retirement Planning: Do Diagrams on Pension Benefit Statements Help?," Papers WP588, Economic and Social Research Institute (ESRI).
    14. Mathias Dolls & Philipp Dörrenberg & Andreas Peichl & Holger Stichnoth, 2018. "Do Retirement Savings Increase in Response to Information About Retirement and Expected Pensions?," CESifo Working Paper Series 6842, CESifo Group Munich.
    15. repec:eee:pubeco:v:158:y:2018:i:c:p:168-179 is not listed on IDEAS
    16. Levy, Matthew R. & Tasoff, Joshua, 2017. "Exponential-growth bias and overconfidence," Journal of Economic Psychology, Elsevier, vol. 58(C), pages 1-14.
    17. Martin Rohleder, 2015. "The Relation between Past Flows and Future Performance: Simple Investment Strategies in the Mutual Fund Sector," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(1), pages 1-28, February.
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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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