I took a Twitter break after teaching finished. I’m back now and thinking about one of my favorite topics, #decumulation in #retirement. Prompted by some conference talks I gave last month, plus some recent articles, here’s a thread. 🧵 (1/15)
What is decumulation? In a nutshell, the drawdown of retirement savings, along with other sources of income such as pensions and SSA retirement benefits (OASI). While there’s a long economics literature on decumulation, I’m especially interested in the psychology of it. (2/15)
It’s a highly complex problem psychologically: large stakes, every individual is different, no chance to learn (decisions often irrevocable) and much uncertainty & emotion. (3/15) avantisinvestors.com/content/avanti…
Decumulation's complexity means there is plenty for behavioral science researchers like me to study. Theories about self control, temporal discounting, loss aversion, fairness, and psychological ownership all apply here. @steveshu (4/15) journals.sagepub.com/doi/10.1177/23…
My decumulation research often focuses on two main sources of retirement income: #annuities and Social Security benefits. Both have puzzles in the traditional econ literature: life annuities are underpurchased, and SSA benefits are often claimed too early. (5/15)
One issue with life annuities is that buyers do not value the features consistent with their actuarial value. Inflation protection is undervalued, for example. Valuation also depends on how info is presented. (6/15) journals.sagepub.com/doi/abs/10.150…
Another major psychological issue people have with life annuities is that they’re often seen as fundamentally unfair even though they can be a useful tool for reducing mortality risk and guaranteeing income for life. (7/15) onlinelibrary.wiley.com/doi/full/10.10…
Annuities (especially QLACs) are likely to become more prevalent in future years since the 2019 Secure Act allows retirement plans to offer them more easily; understanding consumer reactions to them is important and we need more behavioral research in the area. (8/15)
Social Security benefits are also a crucial part of retirement for most Americans. The puzzle is that most people claim early (age 62) rather than full retirement age or later. (9/15) nytimes.com/2021/06/28/bus…
While not everyone has the financial capacity to delay, there are big financial benefits to delay and it’s a bit surprising that it isn’t more popular. (10/15) consumerfinance.gov/about-us/blog/…
Payne, Sagara & I looked at the psychology of SSA claiming, w/ a focus on life expectations, loss aversion, psychological ownership, and patience. (11/15) nber.org/programs-proje…
In related work, we find that judgments of life expectancy (an important decumulation input) are heavily affected by the framing of the question. (12/15) rdcu.be/cnvsj
Recently I’ve been working with @SpillerSAS, @HalHershfield, and others on testing interventions that might change how people think about the SSA claiming decision. (13/15) nber.org/sites/default/…
A big takeaway of all this work is that decumulation decisions are difficult and not easily nudged. Unlike saving for retirement, where firms and individuals are aligned around saving more, in decumulation each person has unique needs and goals aren’t consistent. (14/15)
In addition to people already mentioned in this thread, my sincere thanks to decumulation researchers like @IlliniBizDean @OS_Mitchell and many others who have encouraged and guided so much of this research! 🙏(15/15)
• • •
Missing some Tweet in this thread? You can try to
force a refresh
