Spend More Today Safely: Using Behavioural Economics to Improve Retirement Expenditure Decisions
34 Pages Posted: 22 Jun 2020
Date Written: February 1, 2012
Abstract
This paper examines how behavioural economics can be used to improve the expenditure decisions of retirees, using a SPEEDOMETER (or Spending Optimally Throughout Retirement) retirement expenditure plan which employs defaults within a choice architecture. The plan involves just four key behavioural nudges: (1) First, make a plan – ideally with an adviser; (2) automatic phasing of annuitization which is designed to tackle the aversion to large irreversible transactions and losing control of assets and so allows the greatest possible degree of flexibility in managing the run-down of retirement assets; (3) capital protection in the form of ‘money-back’ annuities which deals with loss aversion, i.e., the fear of losing your money if you die early; and (4) the slogan ‘spend more today safely’ which utilizes hyperbolic discounting to satisfy the human trait of wanting jam today and to reinforce the idea that ‘buying an annuity is a smart thing to do’.
JEL Classification: D91
Suggested Citation: Suggested Citation