Undefined benefit: Projections and anchors as guides to retirement decumulation

Abstract

Most defined contribution retirement income systems assume that retiring participants have the know-how and confidence to turn their lump sum savings into lifelong income. Surprisingly slow withdrawals by retired defined contribution participants cast doubt on this assumption. In this study, we conduct three rounds of lab-in-the-field experiments that give updating information about withdrawal plans to near-to-retirement defined contribution plan participants. We show that income projections induce slightly higher rates of withdrawal but this influence is dominated by income anchors. Giving participants basic information and the opportunity to engage in the decision process through interactive education tools has the potential to improve their wellbeing in retirement.

Keywords: retirement incomes, defined contribution, decision-making, anchoring JEL codes: D14, G40, G51, G53

JEL Classification: D14, G51, G40, G53