Save more or retire later? Retirement planning heterogeneity and perceptions of savings adequacy and income constraints

Many individuals do not contribute sufficiently towards their pension savings to support an income level at their planned retirement age that ensures their desired standard of living. There are two main strategies that they can follow to overcome the resulting gap: they can either increase their savings or plan to retire later. While most previous research has investigated the intentions of individuals to use one of these strategies separately, in this study we investigate how intentions to follow these separate strategy may be interrelated. In particular, we argue that lower perceived savings adequacy will increase the savings intentions of individuals, but that, depending on the level of their perceived current income constraints, they either form stronger intentions to save more (if they perceive weak income constraints) or to retire later (if they perceive strong constraints). Results from an online survey among 1,472 working individuals in the Netherlands provide support for the predicted effects.

To deepen our understanding of the drivers of individual perceptions of savings adequacy and income constraints, we further analyze whether two groups in the sample, who are strongly at risk of not saving enough for retirement, do indeed differ in their perceptions and follow different planning strategies depending on their financial situation. The findings support the proposed relations.

With different individuals relying on different strategies to avoid an unwanted level of pension income, either by saving more or by retiring later, pension communication can be improved by ensuring that the information that is provided is aligned with the strategy that the individual pursues. As our two focal groups also tend to rely on different information channels, the content of these channels can be tailored to the information needs of the typical user. More generally, the presence of systematic differences in the retirement planning strategy that individuals follow makes it important to account for the heterogeneity in planning strategies of individuals when designing communication policies to further stimulate their retirement planning.