Set it and Forget it? Financing Retirement in the Age of Defaults

Abstract

Retirement savings abandonment is a rising concern connected to de fined contribution systems and default enrollment. We use tax data on Individual Retirement Accounts (IRAs) to establish that in 2017, 2.7% of 72.5 year-old account-holders in total abandoned $790 million; the median abandoned account held $5,400. Nearly all of these funds remain with plans and are not sent to state unclaimed property. Regression discontinuity estimates show that abandonment is 10 times higher in automatic rollover IRAs, a type of default account. We nest our findings in a model of retirement savings featuring forgetting to derive implications for passive and active savers.

Keywords: retirement savings, defaults, memory, escheatment

JEL Classification: D83, H24, H31, J32, J14, J63