What should behavioral economists interested in savings patterns study next?

Given how poorly many people save for retirement, researchers may be getting ahead of themselves to start worrying about how people spend and preserve their retirement nest egg in retirement. But Mary Daly and Phil Armour (a Nudge reader) of the San Francisco Federal Reserve have a short 4-page economic newsletter, “Retirement Savings and Decision Errors: Lessons from Behavioral Economics”, that ends with the suggestion that behavioral economists study retired boomers’ 401(k) decisions.

Looking forward, it will be important to consider how the ideas of procrastination and choice overload affect the decision to convert 401(k) money into an annuity rather than to take it out in a lump sum or spend it unrestricted over time. With the baby boom generation entering retirement, these types of issues will be moving to the forefront of public discourse over retirement policy.

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One Response to “What should behavioral economists interested in savings patterns study next?”

  1. Phil Armour Says:

    Speaking entirely for myself (and not at all for either the Federal Reserve Bank of San Francisco or the Federal Reserve System), retirement savings and retirements are too important to study only one thing at a time. If we think people have trouble putting money into a 401(k), why should we assume they’ll be experts taking money out, especially when a large segment of our population is about to start doing exactly that (and when employees over 59.5 still leave money on the table in the form of immediately withdrawable employer-matches)?

    Also, the vast majority of the Letter was dedicated to problems of participation, contribution, and allocation within 401(k)s, so after establishing it as the central concern, a single mention of possible concern over what to do with this money once we reach retirement seemed in order. After all, building up a great savings won’t really matter if it’s thrown away (and on the flip side, a lack of errors in cashing out 401(k)s means that less has to be saved in them to begin with).

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