Missing the Target? Retirement Expectations and Target Date Funds

67 Pages Posted: 14 Dec 2021

See all articles by Byeong-Je An

Byeong-Je An

Nanyang Business School, Nanyang Technological University

Kunal Sachdeva

Rice University - Jesse H. Jones Graduate School of Business

Date Written: December 1, 2021

Abstract

This paper measures the cost of biased retirement expectations for investors in target-date funds. Using survey data, we show that respondents systematically underestimate their long-run labor participation on average by 4.8 years, with errors having meaningful cross-sectional relationships. We use these insights to build a life-cycle model of target-date funds to measure the costs of biased expectations. Calibrations suggest that errors in expectations compound over time, costing the median respondent 4% of total wealth, equivalent to 0.2% a year. These estimates suggest that the choice architecture of target-date funds should be modified to improve the financial adequacy of future retirees.

Keywords: Retirement, Expectations, Longevity, Financial Instruments, Target-date Funds

JEL Classification: D14, D15, G11, G23

Suggested Citation

An, Byeong-Je and Sachdeva, Kunal, Missing the Target? Retirement Expectations and Target Date Funds (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=3981048 or http://dx.doi.org/10.2139/ssrn.3981048

Byeong-Je An

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Kunal Sachdeva (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://kunalsachdeva.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
143
Abstract Views
996
rank
277,382
PlumX Metrics