Savings Adequacy Uncertainty: Driver or Obstacle to Increase Pension Contributions

51 Pages Posted: 23 Dec 2011

See all articles by Ron van Schie

Ron van Schie

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Benedict G. C. Dellaert

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Date Written: November 1, 2011

Abstract

Deciding how much to save for retirement is a difficult task surrounded with many uncertainties. In this paper we study the impact of uncertainty about one’s savings adequacy on retirement savings contributions and information search. We combine ideas from literature in psychology and economics that have opposing predictions for the impact of uncertainty on retirement savings contributions. Accordingly, our results show that the effect of uncertainty is moderated by two factors: an individual’s perceived adequacy of current savings and financial constraints. In particular, we find that uncertainty triggers retirement contributions for those who think they save adequately. At the same time it hinders retirement contributions for those who think they save inadequately. This effect of uncertainty is further moderated by the availability of financial means: a reduction in uncertainty results in more savings contributions only when financial constraints are absent. Concerning the effect of uncertainty on savings information search, we find that uncertainty not only has an indirect effect – because uncertainty affects individuals’ intention to save more for which individuals need to engage in purchase-oriented information search – but that uncertainty also has a direct effect because individuals engage in ongoing information search to directly reduce uncertainty. Implications of these findings are discussed.

Keywords: uncertainty, savings adequacy, retirement, financial decision making

Suggested Citation

van Schie, Ron and Donkers, Bas and Dellaert, Benedict G. C., Savings Adequacy Uncertainty: Driver or Obstacle to Increase Pension Contributions (November 1, 2011). Netspar Discussion Paper No. 11/2011-099, Available at SSRN: https://ssrn.com/abstract=1976173 or http://dx.doi.org/10.2139/ssrn.1976173

Ron Van Schie

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
Rotterdam, NL 3000 DR
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Benedict G. C. Dellaert (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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