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Lessons from Pension Reform in the Americas$
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Stephen J. Kay and Tapen Sinha

Print publication date: 2007

Print ISBN-13: 9780199226801

Published to Oxford Scholarship Online: January 2008

DOI: 10.1093/acprof:oso/9780199226801.001.0001

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The Importance of Default Options for Retirement Saving Outcomes: Evidence from the USA *

The Importance of Default Options for Retirement Saving Outcomes: Evidence from the USA *

(p.59) Chapter 3 The Importance of Default Options for Retirement Saving Outcomes: Evidence from the USA*
Lessons from Pension Reform in the Americas

John Beshears

James J. Choi

David Laibson

Brigitte C. Madrian (Contributor Webpage)

Oxford University Press

If transaction costs are small, standard economic theory would suggest that defaults have little impact on economic outcomes. Agents with well-defined preferences will opt out of any default that does not maximize their utility, regardless of the nature of the default. In practice, however, defaults can have sizable effects on economic outcomes. This chapter summarizes the empirical evidence on defaults in savings outcomes, which strongly suggests that defaults affect savings outcomes at every step along the way. The different types of US retirement income institutions and some of their salient characteristics are described. Empirical evidence from the USA and other countries, including Chile, Mexico, and Sweden is presented on how defaults influence retirement savings outcomes at all stages of the savings life cycle, including savings plan participation, savings rates, asset allocation, and post-retirement savings distributions. The chapter then examines why defaults have such a tremendous impact on savings outcomes. Finally, it considers the role of public policy toward retirement saving when defaults matter.

Keywords:   defaults, retirement savings outcomes, retirement income institutions, USA, Chile, Mexico, Sweden

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