Overpaying and Undersaving: Correlated Mistakes in Retirement Saving and Health Insurance Choices

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Wharton Pension Research Council Working Papers
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financial education
financial literacy
retirement savings
health plans
Economics
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Leive, Adam
Friedberg, Leora
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Decisions about retirement saving and health plans are among the most important and complicated financial decisions people make in the workplace. It has been established in multiple settings that many employees make mistakes in each of these decisions, and we document that these mistakes are costly in the setting that we investigate. Little is known, however, about mistakes across multiple domains, which may provide opportunities for targeted information interventions or other assistance. We document a significant and substantial positive correlation in mistakes across both important domains. Based on our definitions of mistakes, many employees overpay substantially for health insurance while undersaving for retirement, creating an opportunity to shift resources across domains and improve welfare.

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2020-09-01
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We thank Wenqiang (Robin) Cai, Jiafeng Wu, and Yutong Chen for excellent research assistance and Brent Davis for helpful comments. This project received funding from the TIAA Institute and the Wharton School’s Pension Research Council/Boettner Center, and from the UVA Bankard Fund for Political Economy. The content is solely the responsibility of the authors and does not represent official views of the above-named institutions.
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