Set it and Forget it? Financing Retirement in the Age of Defaults
54 Pages Posted: 11 Jun 2021 Last revised: 20 Sep 2021
Date Written: August 11, 2021
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
Suggested Citation: Suggested Citation