Abstract
AbstractThis paper presents the results of a choice experiment that is designed to examine whether changing how plan information is presented affects planned retirement-savings behavior. The main hypothesis is that providing plan information in a more concise format with helpful recommendations, rather than providing lengthy and detailed information, will alter retirement-planning choices. The specific choices examined include: whether to enroll, how much to contribute, and how to structure (broadly) the asset allocation. The choice experiment is conducted on three different samples: (i) a Qualtrics panel of new employees, (ii) a Qualtrics panel of job seekers, and (iii) a sample of business-school students. Our results suggest that, controlling for demographic and other factors, our main hypothesis was not supported by the data in any of the samples. Thus, the data cast some doubt on the notion that simplifying and condensing the retirement-plan information presented to employees will result in vastly different retirement-planning choices.
Highlights
More than half of Americans fail to save enough for retirement
It is worth noting that the one factor that was consistently associated with anticipated behaviors is financial literacy, suggesting that educational initiatives might be more effective than manipulating plan presentation if the goal is to promote the following retirement planning outcomes – increased participation, increased contribution rates, and more prudent, age-based asset allocation
The marginal effects of a probit model presented in the first column of Table 3 show that, after controlling for personal characteristics and other possible explanatory variables, there is no significant difference in the probability of anticipated enrollment in the 401(k) plan across the short version (Short) and long version (Long) conditions
Summary
More than half of Americans fail to save enough for retirement. According to Rhee (2013), about 45% of US households lack sufficient retirement savings and, for working households about to retire, the median household’s retirement savings is just $12,000.1 Kirkham (2016) shows that about 33% of Americans do not have any retirement savings and, among those near retirement age, about 54% have retirement-savings amounts that fall below the recommended threshold. Because the simplified version of the plan information provides recommendations (e.g., rules of thumb) in a more salient manner, we examine whether choices are more in line with these specific recommendations: (i) increased anticipated participation rates, (ii) increased anticipated contribution rates, and (iii) an anticipated portfolio allocation that reflects a suggested, age-based distribution between stock and bonds. All these outcomes are generally viewed as improved retirement planning outcomes (e.g., Bell, March 21, 2017; https://www.bankrate.com/retirement/8rules-of-thumb-on-saving-and-retirement/). It is worth noting that the one factor that was consistently associated with anticipated behaviors is financial literacy, suggesting that educational initiatives might be more effective than manipulating plan presentation if the goal is to promote the following retirement planning outcomes – increased participation, increased contribution rates (at least up to taking full advantage of employer-matching), and more prudent, age-based asset allocation
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