Working Paper: NBER ID: w16612
Authors: Robert Clark; Melinda Sandler Morrill; Steven G. Allen
Abstract: Workers nearing retirement face many important, and often irreversible, choices. We collected detailed demographic and financial literacy data on over 1,500 workers nearing retirement at three large companies to assess how individuals are planning for retirement. Many respondents display limited knowledge and understanding of public and company-provided retirement benefits. Controlling for basic demographics and wealth, we find that misconceptions about eligibility ages and plan generosity influence workers' expected age of retirement. Although retirement-related decisions will affect workers' wellbeing for the remainder of their lifetimes, many do not possess enough basic financial knowledge to confidently make optimal choices.
Keywords: financial literacy; retirement planning; retirement benefits
JEL Codes: J14; J26; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial literacy misconceptions about eligibility ages (G53) | Expected retirement age (J26) |
| Overestimating eligibility age (J26) | Later planned retirement age (J26) |
| Underestimating eligibility age (J14) | Earlier planned retirement age (J26) |
| Underestimating normal retirement age (J26) | Earlier planned retirement age (J26) |
| Errors in knowledge (underestimating normal retirement age) (J26) | Earlier planned retirement age (J26) |
| Errors in knowledge (overestimating normal retirement age) (J26) | Later planned retirement age (J26) |
| Lack of financial literacy (G53) | Suboptimal retirement choices (J26) |
| Suboptimal retirement choices (J26) | Negative impact on workers' lifetime utility (J29) |
| Every year of incorrect estimation regarding retirement eligibility (J26) | Adjusts planned retirement age by several months (J26) |