Serenity Now, Save Later? Evidence on Retirement Savings Puzzles from a 401(K) Field Experiment

Economists have advanced several psychological frictions to explain why many 401(k)-eligible employees undersave for retirement despite generous matching incentives. We provide evidence on four of these frictions through a field experiment randomizing undersaving employees to information- and incentive-based treatments linked to a survey assessing each friction’s baseline incidence. We describe four main findings: (1) We corroborate prior work showing pervasive deficits in retirement literacy and their correlation with saving but reject any meaningful increase in saving from personalized recommendations that demonstrably improve literacy. (2) In an (unplanned) analysis of plan confusion, we estimate that 20 to 37 percent of non-participants mistakenly believed themselves to be enrolled—these employees enrolled at high rates when prompted to review their enrollment status. (3) We find no evidence that enrollment complexity impedes saving—few employees perceived enrollment as prohibitively time-consuming and simplifying enrollment further did not increase saving. (4) We directly implicate present focus as a cause of undersaving by showing that a significant share of employees increased saving in response to a small but immediate microincentive ($10 gift card) but not to clarification of the dramatically larger, but delayed, plan match. A survey of leading stakeholders suggests that the prescriptions for increasing saving, implied by our findings, depart from those currently prioritized within the industry. Finally, calibrations indicate that a beta-delta model of present bias cannot account for the observed behavior and stated beliefs of employees without assuming implausibly high enrollment disutility. We propose an alternative model of anxiety-based present focus and delayed optimism that does explain our findings—and possibly other retirement savings puzzles—and offers a psychological rationale for reforms that link traditional 401(k) accounts to more liquid accounts (e.g., “Serenity Account”) designed to relieve near-term anxiety