September 2022
09Sep

Are Retirement Planning Tools Substitutes or Complements to Financial Capability?

By Gopi Shah Goda, Matthew Levy, Colleen Flaherty Manchester, Aaron Sojourner, Joshua Tasoff, Jiusi Xiao We conducted a randomized controlled trial to understand how a web-based retirement saving calculator affects workers’ retirement-savings decisions. In both conditions, the calculator projected workers’ retirement income goal. In the treatment condition, it additionally projected retirement income based on defined-contribution savings, prominently displayed the gap between projected goal and actual retirement income, and allowed users to interactively explore how alternative, future contribution choices would affect...

September 9, 2022
Articles, Savings, , ,
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09Sep

The Impact of Health on Wealth: Empirical Evidence

By Umesh Ghimire This paper empirically evaluates the impact of health on wealth among adults between the ages of 50 and 100 in the United States. Using the frailty index to measure health status and carefully accounting for the dynamic relationship between frailty and wealth, I find that suffering one more health deficit leads, on average, to approximately 2.23 percent decline in the net worth of American households. The impact is concentrated among individuals over the age of 70, in...

September 9, 2022
Aging, Articles, Savings, , ,
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09Sep

Spending Elasticity and Optimal Portfolio Risk Levels

By David Blanchett, Jeremy Stempien Research on optimal retirement strategies overwhelmingly assumes that the retirement income goal is effectively inelastic (or fixed), which implies the retiree household has neither the desire nor the ability to cut back on spending for the entire duration of retirement (which is often assumed to last 30+ years). This is an incredibly unrealistic assumption that has significant implications on a myriad of retirement decisions. This piece focuses on how spending elasticity impacts optimal portfolio risk...

September 9, 2022
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02Sep

How Gloomy is the Retirement Outlook for Millennials?

By Karen Smith, Richard W. Johnson Social, economic, demographic, and public policy shifts have made Millennial retirement security a pressing concern. Many recent trends threaten financial security for future generations of retirees. Male labor force participation pre-age 55 has slumped, men’s median earnings have stagnated, marriage and homeownership rates are falling, debt levels remain high, and out-of-pocket spending on medical and long-term services and supports are rising. Other trends are more encouraging, such as women’s higher earnings, the rise in...

September 2, 2022
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August 2022
19Aug

A Game-Theoretic Model of the Consumer Behavior under Pay-What-You-Want Pricing Strategy

By Vahid Ashrafimoghari & Jordan W. Suchow In a digital age where companies face rapid changes in technology, consumer trends, and business environments, there is a critical need for continual revision of the business model in response to disruptive innovation. A pillar of innovation in business practices is the adoption of novel pricing schemes, such as Pay-What-You-Want (PWYW). In this paper, we employed game theory and behavioral economics to model consumers’ behavior in response to a PWYW pricing strategy where...

August 19, 2022
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19Aug

Changes in Retirement Savings During the COVID Pandemic

By Elena Derby, Lucas Goodman, Kathleen Mackie & Jacob Mortenson This paper documents changes in retirement saving patterns at the onset of the COVID-19 pandemic. We construct a large panel of US tax data, including tens of millions of person-year observations, and measure retirement savings contributions and withdrawals. We use these data to document several important changes in retirement savings patterns during the pandemic relative to prior years, and we compare these results to changes in savings patterns during the...

August 19, 2022
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12Aug

The Vanguard Participant Saving Rate Index

By Jeffrey W. Clark & Jean A. Young Saving rates are fundamental to retirement wealth accumulations. In this paper, we assess whether Vanguard defined contribution plan participants are saving optimally in their current workplace retirement plan. ● We find that 7 in 10 defined contribution plan participants are saving at rates that would enable them to attain a 65% replacement rate in retirement. Saving rates include both the employee elective contributions and any employer contributions. ● We find that a modest increase...

August 12, 2022
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05Aug

On the Impact of Low Interest Rates on Common Withdrawal Rules in Old Age

By An Chen, Stefan Schelling & Nils Sørensen Ensuring a desired standard of living in retirement has been strongly challenged by increasing life expectancy, and simultaneously by the current and possibly long-lasting low interest environment. In contrast to literature in this field which claims annuitization of wealth being a vital part of retirement planning, many people manage their retirement savings and withdrawal policy during the retirement period independently. To this end, several easily applicable self-managed withdrawal rules are commonly recommended...

August 5, 2022
Articles, Payout, Pension design, Savings, ,
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05Aug

The Misery of Spending Down the Nest Egg: The Effect of Annuitization on Consumption and Wellbeing

By Yu Gao, George Loewenstein & Xianghong Wang We study the effects of annuitization compared to spending down a lump-sum on consumption and subjective wellbeing. Analyzing longitudinal data on UK retirees before and after the pension reform that provided greater freedom to draw down savings, we find that annuitization increased retirees’ consumption and life satisfaction. To further examine the behavioral channel of these effects, we conducted a field experiment with college students, giving them a flow or lump-sum payment. As...

August 5, 2022
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July 2022
28Jul

Trust and Retirement Preparedness: Evidence from Singapore

By Benedict S. Koh, Olivia S. Mitchell & Joelle H. Fong Trust is an essential component of the financial system, and distrust can undermine saving and economic growth. Accordingly, prior research has shown that survey responses to a question about ‘trust in people’ are associated with household willingness to invest in the stock market. Nevertheless, little is known about how trust shapes economic behaviors predictive of retirement preparedness. Our study draws on the Singapore Life Panel (SLP®), a high-frequency internet...

July 28, 2022
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