The Role of Financial Literacy in Determining Retirement Plans
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' wellbeing for the remainder of their lifetimes, many do not possess enough basic financial knowledge to confidently make optimal choices.
This research is funded, in part, by a grant from FINRA Investor Education Foundation. We would like to thank Jennifer Maki, Mehtab Randhawa, and Evan Rogers for their research assistance. The research could not have been accomplished without the cooperation of the companies that partnered with us. We would also like to thank Nicholas Horsewood, Annamaria Lusardi, Olivia Mitchell, and two anonymous referees for useful comments. All remaining errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, FINRA Investor Education Foundation, or any of its affiliated companies.
THE ROLE OF FINANCIAL LITERACY IN DETERMINING RETIREMENT PLANS ROBERT L. CLARK1, MELINDA SANDLER MORRILL2 and STEVEN G. ALLEN3,† Article first published online: 28 JUN 2011 DOI: 10.1111/j.1465-7295.2011.00390.x © 2011 Western Economic Association International Issue Economic Inquiry Economic Inquiry Volume 50, Issue 4, pages 851–866, October 2012 citation courtesy of