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Smaller than We Thought? The Effect of Automatic Savings Policies

By: James J. Choi, David Laibson, Jordan Cammarota, Richard Lombardo and John Beshears
  • Format:Print
  • | Language:English
  • | Pages:60
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Abstract

Medium- and long-run dynamics undermine the effect of automatic enrollment and default savings-rate auto-escalation on retirement savings. Our analysis of nine 401(k) plans incorporates the facts that employees frequently leave firms (often before matching contributions from their employer have fully vested), a large percentage of 401(k) balances are withdrawn upon employment separation, and many employees opt out of auto-escalation. Steady-state saving rates increase by 0.6% of income due to automatic enrollment and 0.3% of income due to default auto-escalation. Only 40% of those with an auto-escalation default escalate on their first escalation date, and more opt out later.

Keywords

Personal Finance; Saving; Retirement; Behavioral Finance; Compensation and Benefits

Citation

Choi, James J., David Laibson, Jordan Cammarota, Richard Lombardo, and John Beshears. "Smaller than We Thought? The Effect of Automatic Savings Policies." NBER Working Paper Series, No. 32828, August 2024.

About The Author

John Beshears

Negotiation, Organizations & Markets
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