Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Are Defined Contribution Plans a Commitment Device?

Are Defined Contribution Plans a Commitment Device? <p>Many who want to save more for retirement are tripped up by short-run temptations. Yet, some can still achieve their goals by using commitment devices to limit suboptimal behavior. Defined contribution plans in the United States resemble a commitment device because they are framed as savings for the future and penalize early withdrawals. This study investigates whether defined contribution plans are particularly useful for households that value the future and exhibit self-control problems. We find that participation in defined contribution plans has a greater impact on wealth accumulation among households with hyperbolic preferences. Our results suggest that those who find it difficult to resist short-run temptation can achieve long-run goals through the use of less liquid accounts and automated savings.</p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Counseling and Planning Springer Publishing

Are Defined Contribution Plans a Commitment Device?

Loading next page...
 
/lp/springer-publishing/are-defined-contribution-plans-a-commitment-device-lfTvEXmu97
Publisher
Springer Publishing
ISSN
1052-3073
eISSN
1947-7910
DOI
10.1891/1052-3073.29.2.234
Publisher site
See Article on Publisher Site

Abstract

<p>Many who want to save more for retirement are tripped up by short-run temptations. Yet, some can still achieve their goals by using commitment devices to limit suboptimal behavior. Defined contribution plans in the United States resemble a commitment device because they are framed as savings for the future and penalize early withdrawals. This study investigates whether defined contribution plans are particularly useful for households that value the future and exhibit self-control problems. We find that participation in defined contribution plans has a greater impact on wealth accumulation among households with hyperbolic preferences. Our results suggest that those who find it difficult to resist short-run temptation can achieve long-run goals through the use of less liquid accounts and automated savings.</p>

Journal

Journal of Financial Counseling and PlanningSpringer Publishing

Published: Nov 1, 2018

There are no references for this article.