Retirement Savings Adequacy and Influencing Savings Behavior

TIAA-CREF Institute Fellows Symposium
TIAA-CREF Headquarters
New York, New York

March 2008 |

In March, 2008 the TIAA-CREF Institute brought together leading academic researchers on retirement and lifelong financial security issues, senior administrators in higher education, and the senior leadership of TIAA-CREF to examine the adequacy of retirement savings levels among today’s workers and how savings behavior can be influenced to improve retirement outcomes. The symposium featured discussions stimulated by the winning papers from the 2007 TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security (Are Americans Saving “Optimally” for Retirement) and the 2007 TIAA-CREF Paul A. Samuelson Award Certificate of Excellence (Savings incentives for Low- and Middle-Income Households: Evidence from a Field Experiment with H&R Block).

The symposium featured presentations by:

William Gale, Vice President and Director of Economic Studies, Director of the Retirement Security Project, The Brookings Institution
Annamaria Lusardi, Professor of Economics, Dartmouth College, and TIAA-CREF Institute Fellow
James Nichols, Vice President, Individual Client Services, TIAA-CREF
David Richardson, Principal Research Fellow, TIAA-CREF Institute
Romano Richetta, Senior Vice President, Participant Services, TIAA-CREF
Andrew Samwick, Professor of Economics, Director of the Nelson A. Rockefeller Center at Dartmouth College, and TIAA-CREF Institute Fellow
John Karl Scholz, Professor of Economics, University of Wisconsin, Madison, and TIAA-CREF Institute Fellow
Paul Yakoboski, Principal Research Fellow, TIAA-CREF Institute

The day-long program was broken into two sessions. The morning session explored retirement savings adequacy topics including who is or is not adequately preparing for retirement, how to assess retirement savings adequacy, different factors impacting retirement savings adequacy, and the retirement savings behavior of TIAA-CREF participants. Key takeaways from the discussion include:

• Most households have a good idea of how to adjust consumption and saving as they move into retirement. Many households ramp up retirement saving as they approach retirement. One reason is that many households finish spending income on some major life purchases such as housing and on their children.
• Helping households understand realistic consumption needs in retirement and resulting wealth targets should be viewed as a best practice that encourages households to save adequately.
• Helping households understand differences in consumption patterns over time is very important to the planning process. In particular, understanding that health expenditures are increasing at about twice the rate of other retirement expenditures.
• Retirement wealth needed to finance necessities such as housing, utilities, food, medical expenses, and taxes, should be annuitized.
   

The afternoon session examined issues related to influencing retirement savings behavior, including the fundamental question of how retirement savings behavior can be positively influenced, whether information “framing” can be used to influence under-saving population segments, and the TIAA-CREF experience in communicating with individuals. Key takeaways include:

• Plan design should provide incentives for households to participate and save adequate amounts.
• Plans should be designed with consideration of how the framing of information affects savings decisions. Research indicates that the presentation of information matters in motivating households to save adequately for retirement.
• Plan design and communications should consider other factors that affect savings decisions, such as the need to finance basic current needs and the level of financial literacy among the target population.