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What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making

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Author Info
Sewin Chan (Wagner Graduate School of Public Service, New York University)
Ann Huff Stevens (Department of Economics, University of California, Davis)

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Abstract

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. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.90.2.253
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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 2 (04)
Pages: 253-266
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Handle: RePEc:tpr:restat:v:90:y:2008:i:2:p:253-266

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January. [Downloadable!] (restricted)
    Other versions:
  2. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 120-137 National Bureau of Economic Research, Inc. [Downloadable!]
  4. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," Working Papers 96007, Stanford University, Department of Economics. [Downloadable!]
    Other versions:
  5. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September. [Downloadable!] (restricted)
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  6. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity Versus Predictive Validity," NBER Working Papers 3558, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July. [Downloadable!] (restricted)
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  9. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," NBER Working Papers 8655, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," Working Papers wp002, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  11. Sewin Chan & Ann Huff Stevens, 2002. "How Does Job Loss Affect the Timing of Retirement?," NBER Working Papers 8780, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier. [Downloadable!] (restricted)
  13. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1307-1333, July. [Downloadable!] (restricted)
  14. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," NBER Working Papers 8229, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Esther Duflo & Emmanuel Saez, 2002. "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment," NBER Working Papers 8885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Brown, 2006. "The Role of Conventional Retirement Age in Retirement Decisions," Working Papers wp120, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  2. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  3. Annamaria Lusardi, 2006. "Planning and Financial Literacy: How Do Women Fare?," Working Papers wp136, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  4. Marianne Bertrand & Dean Karlin & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," NBER Working Papers 11892, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers wp114, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  6. Irena Dushi & Marjorie Honig, 2008. "How Much Do Respondents in the Health and Retirement Study Know About Their Tax-deferred Contribution Plans? A Crosscohort Comparison," Working Papers wp201, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  7. Hannu Piekkola & Matthias Deschryvere, 2004. "Retirement Decisions and Option Values: Their Application Regarding Finland," Discussion Papers 951, The Research Institute of the Finnish Economy. [Downloadable!]
  8. Douglas A. Hershey & Kène Henkens & Hendrik P. van Dalen, 2006. "Mapping the Minds of Retirement Planners," Tinbergen Institute Discussion Papers 06-038/1, Tinbergen Institute. [Downloadable!]
  9. Steven Haider & Mel StephensJr., 2006. "How Accurate are Expected Retirement Savings?," Working Papers wp128, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  10. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
  11. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  12. Leora Friedberg & Michael T. Owyang, 2004. "Explaining the evolution of pension structure and job tenure," Working Papers 2002-022, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  13. John W. Budd, 2008. "Does Employee Ignorance Undermine Shared Capitalism?," NBER Working Papers 14236, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Dalen, H.P. van & Henkens, K. & Hershey, D.A., 2008. "Are Pension Savings sufficient? Perceptions and Expectations of American and Dutch Workers," Discussion Paper 2008-58, Tilburg University, Center for Economic Research. [Downloadable!]
  15. Adeline Delavande & Robert Willis, 2007. "Managing the Risk of Life," Working Papers wp167, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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