Planning for retirement: Save more or retire later?

  • Ron van Schie Ron van Schie

Over recent decades, the global pension landscape has changed. In many developed countries, there has been a gradual shift from defined benefit retirement plans to defined contribution retirement plans. As a consequence, individuals now face a wide range of retirement decisions, such as when to save and how much to contribute to their pension plans. In countries where defined benefit plans remain predominant, recent years have also taught us that individuals should actively consider their retirement situations and cannot simply assume that their retirement savings will be sufficient. In the Netherlands, for example, defined pension payoffs have become less generous in the last decade and the number of pension funds that needed to cut indexation or nominal pension rights recently has increased (Goudswaard, 2014). As a result, guaranteed pension incomes after retirement have come under pressure and individuals are increasingly asked to take a more active role in planning for a financially secure retirement. Nowadays, it is well known that many individuals are not very eager to plan for their retirement. In particular, individuals typically do not tend to think about their future retirement situations (Lusardi & Mitchell, 2007a), and once they do, they are reluctant to change their planning and savings behavior accordingly (Thaler & Benartzi, 2004). As a consequence, many individuals are considered at risk of preparing inadequately. According to the Retirement Confidence Survey, for example, more than 40 percent of American workers are not confident that they will have enough money to live comfortably throughout their retirement (Helman, 2015). Similarly, in the Netherlands, more than 25 percent of Dutch workers are worried they are not saving enough to maintain their standard of living in retirement (Wijzer in Geldzaken, 2014). Hence, there is a clear need for many individuals to take more active control of their retirement planning. Planning for retirement involves different decisions. When individuals plan for a financially comfortable retirement, they can utilize several strategies to adjust their level of retirement income. One of the most prominent strategies for individuals to follow is to adjust how much they contribute to their employer pension plan or individual retirement accounts. On the other hand, they might also adjust their planned retirement age. This seems an increasingly interesting strategy given that recent changes in many pension systems make later retirement financially more rewarding. The question what drives individuals to consider additional savings or to change their planned retirement age is addressed in this thesis.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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