Cognitive Ability, Expectations, and Beliefs About the Future: Psychological Influences on Retirement Decisions

97 Pages Posted: 11 Jan 2014 Last revised: 7 Feb 2014

See all articles by Andrew M. Parker

Andrew M. Parker

RAND Corporation

Leandro Carvalho

Center for Economic and Social Research (CESR); University of Southern California - Department of Economics

Susann Rohwedder

RAND Corporation

Date Written: September 1, 2013

Abstract

Recent advances in behavioral decision research, behavioral economics, and life-span development psychology provide leverage for expanding our understanding of the decision to retire earlier versus later. This report examines how cognitive abilities, perceptions about the future, and other psychological characteristics affect retirement decisions. We use existing and new data collected through the RAND-USC American Life Panel, including detailed assessments of fluid and crystallized intelligence, financial literacy, expectations for the future, future time perspective, and maximizing versus satisficing decision styles.

We find those with high levels of cognitive ability are more likely to retire later, as are those with greater longevity expectations. We also find those with lower cognitive ability have less coherent expectations of retirement — suggesting a need for planning assistance. We also find expectation of lower Social Security benefits is associated with plans to retire later — contrary to our hypothesis that such expectation might spur early retirement in an effort to lock in benefits. Finally, we find that tendencies to maximize (versus satisfice) had mixed effects on retirement decision making, with different aspects of maximizing tendencies showing different relationships with retirement decision making.

Future work should expand these data in a targeted direction. Recent research notes that decision-making competence can be improved with training, and to the extent this trainability extends to older adults, decision skills may be a useful target for intervention. Stronger longitudinal design and analysis can also help demonstrate possible endogeneities between retirement and psychological variables.

Keywords: retirement decisions, longevity, cognitive ability

Suggested Citation

Parker, Andrew M. and Carvalho, Leandro and Rohwedder, Susann, Cognitive Ability, Expectations, and Beliefs About the Future: Psychological Influences on Retirement Decisions (September 1, 2013). Michigan Retirement Research Center Research Paper No. 2013-298. Available at SSRN: https://ssrn.com/abstract=2376879 or http://dx.doi.org/10.2139/ssrn.2376879

Andrew M. Parker (Contact Author)

RAND Corporation ( email )

1776 Main Street
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Leandro Carvalho

Center for Economic and Social Research (CESR) ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
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Susann Rohwedder

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

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