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Procrastination, Retirement Savings, and Annuities

Inaugural IPRA webinar

Speaker: Professor Jeffrey Brown, Dean of the Gies College of Business, Josef and Margot Lakonishok Professor of Business, Professor of Finance

Topic: Procrastination, Retirement Savings, and Annuities

Abstract: We provide evidence that a personality trait – the tendency to procrastinate – can help explain the observed large dispersion in retirement wealth and annuitization rates. We construct a novel measure of the tendency to procrastinate - waiting until near or on the last day of one’s health care open enrollment period to make a plan election. We then use the Pension Protection Act as an exogenous source of variation in an employer’s use of Qualified Default Investment Alternatives (QDIAs) and find that procrastinators after the PPA are much more likely than non-procrastinators to have 100% of their portfolio in QDIA funds, and also have a higher fraction of total contributions in QDIA funds. We provide further evidence that procrastinators take longer to sign up for 401(k) contributions and contribute a lower percentage. We use the difference in framing of defined benefit and cash balance plans to show that procrastinators tend to retire earlier and are less likely to annuitize than non-procrastinators. Taken together, these findings suggest that individuals with a tendency to procrastinate, on average, will be substantially less prepared for retirement. Our findings also have implications for plan design.

Presented by the International Pension Research Association (IPRA)