The Psychology of Decumulation Decisions During Retirement

Abstract

Key Points • • Drawing down one's savings in retirement-known as "decumulation"-is of growing policy importance. • • Current research in both psychology and economics has begun to identify how psychological drivers can affect individuals' decumulation decisions. • • Individual differences in self-control, discounting, and loss aversion, plus affective reactions such as feelings of fairness and psychological ownership can drive financial decisions during decumulation. • • We propose five main policy approaches to influencing decumulation decisions, depending on the decision maker's level of psychological sophistication. • • Financial industry regulators and social program administrators can implement low-cost solutions, such as disclosures and defaults, to improve the wellbeing of tens of millions of retirees.

The pivotal role of fairness: Which consumers like annuities?

“…Our research identifies which clients may be most open to the possibility of annuities—specifically, individuals who are less loss averse and consider annuities more fair will be more willing to consider annuity options. Ongoing research suggests that these individual differences are more important in decumulation decisions than in the accumulation stage (Shu & Payne, ; Shu & Shu, ); while most workers agree on the need to save for the future and respond well to standard savings interventions, the decumulation process requires greater personalization to the needs and preferences of the client. As legislators consider making annuities a more available option in workers' 401(k) plans (Rubin & Tergesen, ), helping individuals make wise choices about incorporating annuities into their retirement plans will be an increasingly important task.…”

“…Third, there is a clear trade‐off to be made between more retirement income sooner vs. more income later. Finally, and most importantly for this paper, psychological differences in individual‐level perceived fairness, feelings of ownership, loss aversion (not just risk aversion), as well as life expectations and patience, can strongly influence how the individual thinks about the tradeoffs within decumulation options (Shu & Payne, 2013; Shu & Shu, ; Shu, ).…”

A review and future avenues for psychological ownership in consumer research

“…Stewardship includes investing effort for the well‐being of the target. For public entities, consumers who feel greater ownership exhibit effort in caring for these resources, such as picking up trash (Peck et al, 2021; Shu & Peck, 2018; Shu & Shu, 2018; Süssenbach & Kamleitner, 2018). Even children infer ownership from viewing stewardship behaviors (Cleroux et al, 2022).…”

What Motivates Social Security Claiming Age Intentions? Testing Behaviorally Informed Interventions Alongside Individual Differences

“…Previous work on claiming decisions has largely focused on nonpsychological factors such as health and socioeconomic status, finding, for example, that consumers who are in poor health tend to claim earlier than those who are in better health (Gustman and Steinmeier 2005), and that workers with a higher socioeconomic status tend to work longer and claim later than workers with a lower socioeconomic status (Li, Hurd, and Loughran 2008). However, there are a variety of psychological factors that may also play a role in the decision of when to claim benefits (Knoll 2011; Shu and Shu 2018), some of which have been empirically investigated in intervention-based contexts (Knoll et al 2015; Liebman and Luttmer 2015), some of which have been measured (i.e., as individual differences), and many that have not been tested. Table 1 provides a brief summary of the relevant literature.…”