In many developed countries, growing financial pressures on collective pension systems lead to lower projected retirement income and a move away from uniform collective pension agreements. The resulting policy shifts confront individuals with greater responsibility in planning for their personal retirement. However, to make normatively optimal retirement planning decisions, individuals need to consider many important components and to apply complex decision and optimization rules. This complexity is likely to lead to biases in their decision-making and can result in suboptimal retirement planning decisions. In this review paper, we combine a normative and behavioral perspective to review how individuals could be assisted in making complex retirement planning decisions. We first discuss key decision components that, from a normative perspective, are valuable for individuals when considering their pension planning. Next, we introduce a normative pension life cycle model that includes these components, as well as the type of complex optimization rule that individuals need to apply when incorporating the decision components in their pension planning. We then review a number of important behavioral biases that individuals may experience when attempting to conduct retirement planning according to a normative model. Finally, we combine insights from normative and behavioral literature to provide suggestions for strategies that pension funds, policymakers, and financial intermediaries can use to help individuals overcome the complexity challenge of retirement planning decisions.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

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