Save More Later? The Effect of the Option to Choose Delayed Savings Rate Increases on Retirement Wealth

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Wharton Pension Research Council Working Papers
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Beshears, John
Dai, Hengchen
Milkman, Katherine L
Benartzi, Shlomo

Prior research in economics and psychology has documented that individuals exhibit time-inconsistent preferences when faced with the opportunity to take an action that involves immediate costs in return for future benefits – the notion of implementing such an action now is unappealing, but the notion of implementing the same action later is attractive. Because increasing contributions to a retirement savings plan requires a reduction in current consumption (an immediate cost) in order to increase consumption in old age (a future benefit), individuals may be more likely to agree to a contribution rate increase if they have the option to have the increase implemented at a delay. We conducted a field experiment with several universities to test whether the option to choose a delayed contribution rate increase boosts savings. Relative to employees who are offered a convenient mechanism for increasing their contribution rates immediately, employees who are offered a convenient mechanism for increasing their contribution rates immediately or at a delay are no more likely to agree to an increase. In fact, the latter group exhibits lower savings rates over the coming months, as the delayed option attracts some employees. However, when the delayed option is framed as being implemented after a psychologically meaningful moment, such as an employee’s next birthday, the negative effect of offering a delayed option is undone.

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