Leakage from Retirement Savings Accounts in the United States

Goodman, Lucas; Mortenson, Jacob; Mackie, Kathleen; Schramm, Heidi

doi:10.1086/715819

Cited by 11 publications

(8 citation statements)

References 16 publications

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“…Individuals may also make direct contributions to IRAs, but this is much rarer. 6 For the current cohort of retirees, IRAs appear to finance a larger share of retirement consumption than DC accounts: in 2015, individuals aged 65 or older withdrew $26 billion from DC accounts and $183 billion from IRAs (Goodman et al, 2021).…”

Section: Regulatory Environment and Unclaimed Accountsmentioning

confidence: 99%

“…Prior studies have examined whether households are saving enough for retirement (Scholz et al, 2006;Skinner, 2007), while others have studied the role of specific factors such as financial literacy (Lusardi andMitchell 2014, Clark et al 2006), information (Mastrobuoni, 2011), and "leakages" (i.e., cash-outs) at job separation (Armour et al, 2016;Clark et al, 2014;Munnell and Webb, 2015) or more generally prior to retirement (Goodman et al, 2021). Our results suggest that even if individuals are saving during their working lives, the risk of account abandonment could carry implications for optimal lifecycle consumption.…”

Section: Introductionmentioning

confidence: 99%

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Set it and forget it? Financing retirement in an age of defaults

Goodman

Mukherjee

Ramnath

2023

Journal of Financial Economics

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Section: Regulatory Environment and Unclaimed Accountsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Set it and forget it? Financing retirement in an age of defaults

Goodman

Mukherjee

Ramnath

2023

Journal of Financial Economics

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“…At the start of each year, they decide whether to continue saving (persist) or to withdraw and spend their entire savings with interest accumulated thus far (defect). 2 Our goal to assist them in maximizing the profit they reap over τ − 1 years from their initial investment. Our incentive mechanism is a a schedule of lotteries.…”

Section: Optimizing Incentivesmentioning

confidence: 99%

“…Even considering households' net worth, 2/3 fall short of conservative savings targets based on age and income [1]. Balances in retirement accounts for age-60 participants are reduced by 31% due to leakage, including cash-outs, hardship withdrawals, and the failure to repay loans [2]. In 2013, the US government and nonprofits spent $670M on financial education, yet financial literacy accounts for a minuscule 0.1% of the variance in financial outcomes [3].…”

mentioning

confidence: 99%

Overcoming Temptation: Incentive Design For Intertemporal Choice

Sukumar¹,

Elliott-Williams²,

Hakimi³

et al. 2022

Preprint

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Individuals are often faced with temptations that can lead them astray from long-term goals. We're interested in developing interventions that steer individuals toward making good initial decisions and then maintaining those decisions over time. In the realm of financial decision making, a particularly successful approach is the prize-linked savings account: individuals are incentivized to make deposits by tying deposits to a periodic lottery that awards bonuses to the savers. Although these lotteries have been very effective in motivating savers across the globe, they are a one-size-fits-all solution. We investigate whether customized bonuses can be more effective. We formalize a delayed-gratification task as a Markov decision problem and characterize individuals as rational agents subject to temporal discounting, a cost associated with effort, and fluctuations in willpower. Our theory is able to explain key behavioral findings in intertemporal choice. We created an online delayed-gratification game in which the player scores points by selecting a queue to wait in and then performing a series of actions to advance to the front. Data collected from the game is fit to the model, and the instantiated model is then used to optimize predicted player performance over a space of incentives. We demonstrate that customized incentive structures can improve an individual's goal-directed decision making. Significance StatementIndividuals are often tempted to abandon long-term goals (e.g., weight loss) by enticements that provide immediate reward (e.g., a piece of cake). We use computational models of decision making to determine personalized interventions that allow an individual to overcome temptation and improve long-term outcomes. We formalize a theory in which individuals make a series of choices to persist toward long-term goals or defect and obtain an immediate reward. The theory is used to determine a limited schedule of incentives that maximizes expected outcomes. We conduct experiments with a simulated line-waiting task that show the theory's potential.

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Section: Introductionmentioning

confidence: 99%

Set It and Forget It? Financing Retirement in an Age of Defaults

Goodman¹,

Mukherjee²,

Ramnath³

2022

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Retirement savings abandonment is a rising concern connected to defined contribution systems and default enrollment. We use tax data on Individual Retirement Accounts (IRAs) to establish that for a recent cohort, 0.4% of retirement-age individuals abandoned an aggregate of $66 million, proxied by a failure to claim over ten years after a legal requirement to do so. Analysis of state unclaimed property databases suggests that workplace defined contribution plans are abandoned at a higher rate than IRAs. Finally, regression discontinuity estimates show that certain accounts created by default enrollment are at higher risk of abandonment by passive savers.

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Leakage from Retirement Savings Accounts in the United States

Cited by 11 publications

References 16 publications

Set it and forget it? Financing retirement in an age of defaults

Set it and forget it? Financing retirement in an age of defaults

Overcoming Temptation: Incentive Design For Intertemporal Choice

Set It and Forget It? Financing Retirement in an Age of Defaults

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