Retirement Savings: A Tale of Decisions and Defaults. (26th June 2017)

• Record Type: Journal Article
• Authors: Dobrescu, Loretti Isabella; Fan, Xiaodong; Bateman, Hazel; Newell, Ben Rhodri; Ortmann, A.; Thorp, Susan
• Is Part Of: Economic journal. Volume 128:Number 610(2018)
• Page Start: 1047
• Page End: 1094
• Publication Date: 2017-06-26
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1111/ecoj.12447
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: This study develops a structural dynamic life‐cycle model to examine the behavior of members of an industry‐wide pension fund to assess both the prevalence of defaults and their impact on retirement savings. We estimate the model using the simulated method of moments on administrative data from a large Australian pension fund. Our results show that default settings strongly influence wealth accumulation. Such settings are also highly persistent, both over time and across decisions. Overall, the findings suggest that if defaults (particularly the irreversible ones) are not carefully designed, retirement savings can be severely affected.