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Standard economic theories of saving implicitly assume that households have the cognitive ability to solve the relevant optimization problem and the willpower to execute the optimal plan. Both of the implicit assumptions are suspect. Even among economists, few spend much time calculating a personal optimal savings rate. Instead, most people cope by adopting simple heuristics, or rules of thumb. In this paper, we investigate both the heuristics and the biases that emerge in the area of retirement savings. We examine the decisions employees make about whether to join a savings plan, how much to contribute, and how to invest. Saving for retirement is a difficult problem, and most employees have little training upon which to draw in making the relevant decisions. Perhaps as a result, investors are relatively passive. They are slow to join advantageous plans; they make infrequent changes; and they adopt naive diversification strategies. In short, they need all the help they can get. We discuss the possible role of interventions aiming to improve retirement decision making. Fortunately, many effective ways to help participants are also the least costly interventions: namely, small changes in plan design, sensible default options, and opportunities to increase savings rates and rebalance portfolios automatically.

Does automatic enrollment into a retirement plan increase financial distress due to increased borrowing outside the plan? We study a natural experiment created when the U.S. Army began automatically enrolling newly hired civilian employees into the Thrift Savings Plan. Four years after hire, automatic enrollmentincreases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence ofincreased financial distress. Automatic enrollment causes no significant change in credit scores, debt balances excluding auto debt and first mortgages, or adverse credit outcomes, with the possible exception of increasedfirst-mortgage balances in foreclosure.

We compare the liquidity that six developed countries have built into their employer-based defined contribution (DC) retirement schemes. In Germany, Singapore, and the UK, withdrawals are essentially banned no matter what kind of transitory income shock the household realizes. By contrast, in Canada and Australia, liquidity is state-contingent. For a middle-income household, DC accounts are completely illiquid unless annual income falls substantially, in which case DC assets become highly liquid. The US stands alone in the universally high liquidity of its DC system: whether or not income falls, the penalties for early withdrawal are low or non-existent.

This study used data from the 2018 National Financial Capability Study to investigate the association between financial hardship and retirement planning behaviors. Results from logistic regressions showed that respondents with high difficulty making ends meet were more likely to calculate retirement needs and more likely to own a non-employer sponsored retirement plan. The perceived over-indebtedness was positively associated with owning an employer-sponsored account while negatively associated with owning a non-employer-sponsored account. Financial fragility was associated with a lower likelihood of calculating retirement needs and having a retirement account. The results of additional generational analyses revealed that the difficulty making ends meet and the perceived over-indebtedness showed different patterns with retirement planning behavior across three generations. In contrast, financial fragility showed consistent and negative associations with the retirement planning behaviors across generations.

This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives and document an important role for self-reported pension data in determining retirement behavior. Well-informed individuals are far more responsive to pension incentives than the average individual. Ill-informed individuals seem to respond systematically to their own misperceptions of pension incentives.

Most employers permit 401(k) plan participants to borrow from their retirement plan assets. Using an administrative dataset tracking over 800 plans for five years, we show that 20 percent of workers borrow at any given time, and almost 40 percent borrow at some point over five years. Also, workers borrow more when a plan permits multiple loans. Ninety percent of loans are repaid, but 86 percent of workers who change jobs with a loan default on the outstanding balance. We estimate that $5 billion per year in defaulted plan loans generate federal revenues of $1 billion annually, more than previously thought.

The Dutch pension system is highly ranked on adequacy. These rankings, however, are based on fictitious replacement rates for median income earners. This paper investigates whether the Dutch pension adequacy is still high when we take into account the resources that people really accumulate, using a large administrative data set. A comprehensive approach is followed: not only public and private pension rights, but also private savings and housing wealth are taken into account. Summed over all age- and socioeconomic groups we find a median gross replacement rate of 83% and a net replacement rate of 101%. At retirement age, 31% of all households face a gross replacement rate that is lower than 70% of current income. Public and occupational pensions each account for more than 35% of total pension annuities. Private non-housing assets account for 14% and imputed rental income from net housing wealth accounts for about 10%. Some vulnerable groups, such as the self-employed, have below average replacement rates. Results are fairly similar to results found in the UK, indicating that we should be careful in evaluating the adequacy of pensions systems on the basis of fictitious replacement rates.

Retirement policy in America is oriented around 401(k) plans and other employer-sponsored savings plans, which together will receive a whopping $1.5 trillion in tax subsidies over the next decade. This Article uncovers a harmful flaw in the policy governing withdrawals made prior to reaching retirement age: an unnoticed gap between the rules governing plan distributions and the rules imposing penalties on employees in certain situations. Employees are generally required to seek approval from their plan administrator to receive a \"hardship distribution.\" These requests are granted for employees who face an \"immediate and heavy financial need,\" such as eviction or an unexpected medical expense. However, even with this approval, these distributions are frequently subject to an \"early withdrawal penalty\" under a separate regime that is not coordinated with the hardship distribution rules. We document instances of employees who were able to survive financial calamity because of a hardship distribution only to learn that they now face a tax penalty-resulting in another cash crunch. Retirement plans disburse over $16 billion in hardship withdrawals each year, and the funds go to the most financially precarious households-ones that have fewer assets, lower incomes, and are more likely to be Black or Hispanic. Recognizing the existence of this gap also exposes a fundamental flaw in retirement savings policy: under the existing rules, some workers are made worse off by trying to make use of 401(k) plans. This Article introduces several reforms to protect against penalizing financial precarity by integrating hardship distributions with the early withdrawal penalty regime. We also explore broader reforms to effectively reduce financial precarity among lower-income and lower-asset households.

Despite decades of retirement plan enrollment meetings, many employees fail to fully engage in their employer-sponsored retirement plans. Under the framework of the Transtheoretical Model (TTM) of Behavior Change, this study examines the effectiveness of a financial psychology intervention designed to increase engagement in employer-sponsored retirement plans across three employee groups: 107 employees of a regional bank, 43 employees of a custom manufacturing company, and 48 employees of a construction company. Following the intervention, significant changes in plan participation, contribution rates, and one-on-one follow-up meetings with financial advisors were observed. Thirty-eight percent of previously unengaged employees became plan participants, 68% requested and held meetings with financial advisors, and contribution rates increased by 39%, resulting in a total $199,445 increase in first-year annualized contributions and employer matching funds across the three groups.

I evaluate the effect of loyalty on individuals' portfolio choice using a unique dataset of retirement contributions. I exploit the statutory difference that, in 401(k) plans, stand-alone employees can invest directly in their division, while conglomerate employees must invest in the entire firm, including all unrelated divisions. Consistent with loyalty, employees of stand-alone firms invest 10 percentage points (75%) more in company stock than conglomerate employees. Support is also found using variation in loyalty between different groups of employees, across and within firms. The cost to employees of loyalty is large, amounting to nearly a 20% loss in retirement income.