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Set it and Forget it? Financing Retirement in an Age of Defaults

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Abstract

Retirement savings abandonment is a rising concern connected to defined contribution systems and default enrollment. We use tax data on Individual Retirement Accounts (IRAs) to establish that for a recent cohort, 0.4% of retirement-age individuals abandoned an aggregate of $66 million, proxied by a failure to claim over ten years after a legal requirement to do so. Analysis of state unclaimed property databases suggests that workplace defined contribution plans are abandoned at a higher rate than IRAs. Finally, regression discontinuity estimates show that certain accounts created by default enrollment are at higher risk of abandonment by passive savers.

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  • Lucas Goodman & Anita Mukherjee & Shanthi Ramnath, 2022. "Set it and Forget it? Financing Retirement in an Age of Defaults," Working Paper Series WP 2022-50, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:95081
    DOI: 10.21033/wp-2022-50
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    More about this item

    Keywords

    escheatment; defaults; retirement savings;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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