An Analysis of Financial Preparation for Retirement

Abstract

In this study, we analyze financial preparation for retirement. Specifically, probit analysis was conducted using data from the Survey of Consumer Finances to compare and contrast variables affecting retirement preparation between men and women aged thirty to thirty-nine. We specifically analyze two dependent variables: whether or not an individual is eligible for a retirement plan and whether or not an individual is contributing to a retirement plan. The findings indicate that good health and work history have significant positive effects on retirement plan eligibility whereas age and education levels have significant negative effects. Regarding retirement plan contributions, the findings indicate significant positive effects regarding income and womenhood. Therefore, the findings generally support the hypothesis of income as a predictor of retirement plan preparation for women in their thirties. In addition, the findings indicate that women who are divorced, separated, or living with a partner are more likely to contribute to their pension plans through work. Education is significant and positive as a predictor for the decision to contribute to a pension plan for women in their thirties, thus supporting our hypothesis of a significant positive relationship between education and pension plan contributions. Conversely, the findings regarding work history (length of employment and number of weeks worked per year) and the decision to contribute to a pension plan were significant and negative for women in their thirties. This result could be due to a general unconcerned attitude regarding retirement preparation in this age group since actual retirement for most is at least thirty years away. Finally, household size was insignificant as a predictor of both pension plan eligibility and the decision to contribute. Therefore, the findings do not support the hypothesis of household size as a predictor of retirement plan preparation. Thus, it appears that if individuals in large households have less discretionary income to spend on certain items, contributions to a retirement plan does not seem to be influenced by family size.