Do Income Projections Affect Retirement Saving?

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.