News, Analysis, and Research for the Retirement Planning Industry

Does Education Impact Retirement Behavior?

In Uncategorized on 17 November 2010 at 9:50 pm

An email today from the Center for Retirement Research at Boston College (CRR) prompted me to revisit a paper they published in February.

In July and August 2009, The CRR surveyed 1,317 working, non-retired adults between the ages of 45-59 to see how the stock market crash of 2008 changed their approach on retirement saving and expected retirement ages.  They were asked if they planned on saving more, retiring later, both, or neither.

Here’s what I found to be the most fascinating part of the report:

A subset of 358 respondents that indicated they had 1) at least $50,000 in financial assets set aside for retirement, 2) lost at least 10% over the previous year; and 3) provided a target retirement age.  To test if increasing financial literacy would impact decisions, after these respondents took the initial survey, they were asked to assume that they could be reasonably certain to recoup all of their losses if they either saved and additional 11% of earnings, or retired on year later.

The results before and after receiving financial advice:

Before After
Save more and work more 13% 30%
Work longer only 36% 28%
Save more only 10% 18%
Neither work longer nor save more 41% 24%

I am not sure what is the most surprising result:

1.     That 60% of those who responded they would do nothing changed their mind after receiving advice (24% work more, 20% save more, 16% both).

2.     The percentage of respondents that said they would do both more than doubled

3.     Despite receiving financial advice, nearly a quarter of respondents who lost at least 10% of their retirement savings still said they would not do anything.

The authors of the study believe that “[t]his outcome suggests that credible information can substantially change both retirement and savings behavior.” If point of the exercise is to determine whether increased education is a worthwhile investment, than I agree that without question it is.

But to really determine if good information will change behavior, we have to see what investors actually do.  After all, it is one thing to say you will save more, but when you get that email from Best Buy on their “unadvertised” Black Friday internet-only deal on 55” LCD TVs (contrast ratio: 120,000:1, 120Hz!) it is quite another to actually do it.

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