Friday, 12 October 2012

The role of financial literacy in determining retirement plans

an article by Robert L Clark, Melinda Sandler Morrill and Steven G Allen (North Carolina State University, USA) published in Economic Inquiry Volume 50 Issue 4 (October 2012)


Workers nearing retirement face many important, and often irreversible, choices. We collected detailed demographic and financial literacy data on over 1,500 workers nearing retirement at three large companies to assess how individuals are planning for retirement.

Many respondents display limited knowledge and understanding of public and company-provided retirement benefits. Controlling for basic demographics and wealth, we find that misconceptions about eligibility ages and plan generosity influence workers’ expected age of retirement.

Although retirement-related decisions will affect workers’ well-being for the remainder of their lifetimes, many do not possess enough basic financial knowledge to confidently make optimal choices.

JEL classifications J26, J320, J240

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