Cognitive Reflection and Social Proof: Navigating Complex Tax Incentives for Retirement Savings.

As the population ages, the urgency to ensure financial security in retirement intensifies. Governments have introduced tax incentives to promote retirement savings, but their complexity could pose challenges. Navigating these complex tax incentives often requires both cognitive reflections, the ability to resist impulsive answers and consider an issue thoughtfully, and social proof, the influence of others' endorsements on one's decisions. This study investigates the roles of these factors on the utilization of intricate tax incentives designed for retirement savings. We conduct a survey-based experiment on Thai taxpayers with varied complexity rules and framing message scenarios. Our findings indicate that individuals with higher Cognitive Reflection Test (CRT) scores are more likely to select complex tax incentives. We further illustrate that cognitive reflection has a more substantial impact on the decision to engage in a complex tax incentive than social proof. This highlights the importance of intrinsic cognitive abilities in navigating complex financial decisions. We also establish that the influence of social proof is particularly significant among individuals with lower cognitive reflection scores, signifying a nuanced interplay between individual cognitive abilities and social influences. Our findings highlight the importance of accounting for cognitive abilities and social proof dynamics when crafting retirement saving incentives.

Retirement Saving Over the Life Cycle: Evidence from a Developing Country.

Despite its importance, little is known about how individuals save for retirement through tax-advantaged vehicles over their working lives. Using Thailand's population of tax returns, this study examines the age profile of retirement saving and explores its implications for retirement savings adequacy. We find that the life-cycle pattern in retirement saving is hump-shaped across age. It rises from 3.0% when one begins working to 4.6% at age 46-48, then declines as one approaches retirement. The retirement saving rates peak later for higher-income workers. For all income groups, we also document the large role of the low-risk saving vehicle throughout the working life. Based on the predicted life-cycle saving profile, we estimate the income replacement rate from tax-advantaged saving vehicles to be around 24%, which is in line with evidence from advanced economies.

Saving Regret and Procrastination.

In countries, where a substantial proportion of retirement income rests on savings, there is much concern that a sizeable fraction of the population reaches retirement with insufficient financial resources. We define saving regret as the wish in hindsight to have saved more earlier in life. We measured saving regret and possible determinants in a survey of U.S. households in which respondents were aged 60-79. We find high levels of saving regret, affirmed by some 58%. Saving regret exhibits significant and plausible correlations with personal characteristics and wealth: Married, older, healthier and wealthier respondents are less likely to report saving regret, suggesting the measure's validity. We find only weak evidence for correlations between saving regret and measures of procrastination: persons with traits associated with procrastination express saving regret about as often as those without those traits.

Skint: Retirement? Financial Hardship and Retirement Planning Behaviors.

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.

Saving for a Better Retirement: How Risk Attitudes Affect Choice of Retirement Scheme.

Over 3 million people in Hong Kong and 21 million people in the UK are saving for retirement under the mandatory provident fund and individual savings account schemes, respectively. Yet, we know little about how individual preferences, such as risk attitudes (risk-seeking and risk-averse) that are known to impact highly consequential decisions in a variety of real-world contexts, impact retirement investment choices. In two experimental studies (Study 1-Hong Kong sample and Study 2-United Kingdom sample), we show that personal risk attitudes were a strong predictor of the profile of retirement investment portfolios. Specially, risk-averse people allocated more of their savings to low-risk funds than risk-seeking people. The pattern of findings is consistent in both Hong Kong mandatory and the UK voluntary retirement investment schemes. These findings are considered in light of policy decisions made in Hong Kong retirement and UK pension schemes.

Affordable care encourages healthy living: Theory and evidence from China's new cooperative medical scheme.

In developing a theory of medical insurance and health behavior with bequest motive, we discover that whether ex ante moral hazard or the opposite occurs hinges upon the differential effects of health behavior on morbidity and mortality. Providing insurance can encourage healthy living by making longevity more affordable. We test the theory utilizing a unique experiment of China introducing the new cooperative medical scheme, unique in its long-term credibility necessary for our proposed channel. This scheme reduced cigarette use by around 9%. Further empirical analysis failed to falsify our theory or the alternative mechanism of health insurance reducing stress and thus the demand for cigarettes and hard liquor. Both newly proposed mechanisms alleviate concerns over ex ante moral hazard caused by providing affordable care for the poor.

Annuity choices and income drawdown: evidence from the decumulation phase of defined contribution pensions in England.

We provide new empirical evidence on the importance of defined contribution pension wealth in England, and the nature of annuitization decisions taken by older adults who retire with such sources of wealth. Other things equal, financial literacy, and numeracy in particular, are important factors governing individuals' choices over whether to shop around for an annuity as opposed to taking the 'path of least resistance' option and purchasing from their original pension fund provider. This has important policy and welfare implications given that buying an annuity on the open market has significant financial benefits for most people. In the context of the increasing reliance on private provision for retirement, the importance of individuals having the financial literacy to successfully navigate complex financial decisions late in life should not be underestimated.

Perceived financial retirement preparedness and its correlates: a national study in Israel.

Studies suggest that a large proportion of adults do not manage to save enough for retirement. Correlates of retirement saving behaviors have yet to be fully understood. The goal of this study was to examine perceived financial preparedness for retirement and its correlates. We studied the effect of perceived financial knowledge and involvement, social and institutional support, and attitudes toward retirement in a national sample of 227 non-retired Israeli adults (mean age = 44; 53% female; 81% Jewish). Results indicated that only about 20% perceived themselves as financially prepared for retirement. The main correlates of financial preparedness were financial knowledge and involvement in financial activities. The results show that a large proportion of the Israeli population feel underprepared for retirement. Those who perceive themselves as having high levels of financial knowledge are less predisposed to feel underprepared. Future research should examine the relationship between perceived financial preparedness and actual savings.

INCREASING SAVING BEHAVIOR THROUGH AGE-PROGRESSED RENDERINGS OF THE FUTURE SELF.

Many people fail to save what they need to for retirement (Munnell, Webb, and Golub-Sass 2009). Research on excessive discounting of the future suggests that removing the lure of immediate rewards by pre-committing to decisions, or elaborating the value of future rewards can both make decisions more future-oriented. In this article, we explore a third and complementary route, one that deals not with present and future rewards, but with present and future selves. In line with thinkers who have suggested that people may fail, through a lack of belief or imagination, to identify with their future selves (Parfit 1971; Schelling 1984), we propose that allowing people to interact with age-progressed renderings of themselves will cause them to allocate more resources toward the future. In four studies, participants interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In all cases, those who interacted with virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones.