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Smaller than We Thought? The Effect of Automatic Savings Policies

Author

Listed:
  • James J. Choi
  • David Laibson
  • Jordan Cammarota
  • Richard Lombardo
  • John Beshears

Abstract

Medium- and long-run dynamics undermine the effect of automatic enrollment and default savings-rate auto-escalation on retirement savings. Our analysis of nine 401(k) plans incorporates the facts that employees frequently leave firms (often before matching contributions from their employer have fully vested), a large percentage of 401(k) balances are withdrawn upon employment separation, and many employees opt out of auto-escalation. Steady-state saving rates increase by 0.6% of income due to automatic enrollment and 0.3% of income due to default autoescalation. Only 40% of those with an auto-escalation default escalate on their first escalation date, and more opt out later.

Suggested Citation

  • James J. Choi & David Laibson & Jordan Cammarota & Richard Lombardo & John Beshears, 2024. "Smaller than We Thought? The Effect of Automatic Savings Policies," NBER Working Papers 32828, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32828
    Note: AG PE
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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