“Default Options and Retirement Saving Dynamics”. (2nd round R&R, American Economic Review). [This version: August 2023]
I document that employees offset the short-run positive effect of auto-enrollment in retirement plans by saving less in the future: saving gains are attenuated within three years except at the bottom of the savings distribution. The heterogeneity and dynamics of auto-enrollment’s impact are well captured by a lifecycle-model with an estimated opt-out cost of approximately $250. My estimate is smaller than the thousands of dollars estimated in previous studies because non-auto-enrolled workers can compensate for not contributing now by contributing more later. Consequently, the model predicts modest changes in lifetime wealth accumulation for most but persistent gains at the bottom.
“What Drives Investors’ Portfolio Choices? Separating Risk Preferences from Frictions” with Tim de Silva (MIT). [This version: February 2023]. (Revise & Resubmit, Journal of Finance).
We study the role of risk preferences and frictions in portfolio choice using variation in 401(k) default investment options. Patterns of active choice in response to different default funds imply that, absent participation frictions, 94% of investors prefer holding stocks, with an equity share of retirement wealth declining with age—patterns markedly different from their observed allocations. We use this quasi-experiment to estimate a lifecycle model and find relative risk aversion of 2, EIS of 0.4, and a $200 portfolio adjustment cost. Our results suggest low stock-market participation is due to participation frictions rather than non-standard preferences such as loss-aversion.
“Efficiency in Household Decision Making: Evidence from the Retirement Savings of US Couples”, with Lucas Goodman (US Treasury) and Cormac O’Dea (Yale). (Revise & Resubmit, American Economic Review). [Slides: July 2022] [Draft: April 2023].
Pareto efficiency is a core assumption of most models of the household. We test this assumption using a new dataset covering the retirement saving contributions of 1.3 million U.S. couples. While a vast literature has failed to reject household efficiency in developed countries, we find evidence of widespread inefficiency in our setting: retirement contributions are not allocated to the account of the spouse with the highest employer match rate. This lack of coordination cannot be explained by inertia, auto-enrollment, or simple heuristics. Instead, we find that indicators of weaker marital commitment correlate with the incidence of inefficient allocations.
“Who Benefits from Retirement Saving Incentives in the U.S.? Evidence on Racial Gaps in Retirement Wealth Accumulation”, with Jorge Colmenares, Cormac O’Dea (Yale), Jonathan Rothbaum (Census), and Lawrence Schmidt (MIT). [Draft: November 2023].
U.S. employers and the federal government devote more than 1.5% of GDP annually to promote retirement saving. We study the distributional and lifetime impact of these savings incentives across racial groups using a new employer-employee linked data set covering millions of Americans. The average contribution rate of Black and Hispanic workers is roughly 40% lower than that of White workers. The rich and the children of the rich save more; racial differences in own and parental incomes account for a large share of the racial contribution gaps. Tax and employer matching subsidies further amplify these saving disparities by channeling more resources to those who save more. We estimate that breaking the link between contribution choices and saving subsidies, through revenue-neutral reforms, would significantly reduce racial disparities and intergenerational persistence in wealth accumulation.
“How Do Consumers Finance Increased Retirement Savings?” with Christopher Palmer (MIT). [Draft: September 2023].
The welfare impact of increasing retirement contributions depends on how individuals adjust their spending, borrowing, and non-retirement savings in response. Using newly merged deposit-, credit-, and pension-account data from a large UK financial institution, we estimate the relevant elasticities by leveraging a policy that incrementally increased minimum retirement contributions in the U.K. from 2% to 8% of salary between March 2018 and April 2019. For every £1 reduction in monthly take-home pay due to higher employee pension contributions, consumers cut their spending by £0.34 (especially in the restaurant and leisure categories) and finance the remaining with lower deposit account balances and higher credit card debt levels. Those with lower initial deposit balances cut their spending the most, while those with significant liquid savings draw down their deposits. Interpreted via a theoretical model, these results suggest that a social planner concerned about undersaving should target retirement saving interventions at low-liquidity individuals whose spending is more elastic to increased retirement saving. In contrast, interventions that increase the retirement contributions of high-liquidity individuals are both less efficient (due to large crowd-out) and often regressive.
“The One Child Policy and Household Saving” with Nicolas Coeurdacier (SciencesPo) & Keyu Jin (LSE). Journal of the European Economics Association. June 2023. [working paper version]
We investigate whether the ‘one-child policy’ has contributed to the rise in China’s household saving rate and human capital in recent decades. In a life-cycle model with intergenerational transfers and human capital accumulation, fertility restrictions lower expected old-age support coming from children—inducing parents to raise saving and education investment in their offspring. Quantitatively, the policy can account for at least 30% of the rise in aggregate saving. Using the birth of twins under the policy as an empirical out-of-sample check to the theory, we find that quantitative estimates on saving and education decisions line up well with micro-data.
“The Evolution of U.S. Firms’ Retirement Plan Offerings: Evidence from a New Panel Data Set” with Antoine Arnoud (IMF), Jorge Colmenares (MIT), Cormac O’Dea (Yale) and Aneesha Parvathaneni (Yale). NBER RDRC paper NB20-14. [April 2021]