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Default Options and Retirement Saving Dynamics

From Taha Choukhmane

I document that employees offset the short-run positive effect of auto-enrollment in retirement plans by saving less in the future. Consequently, a structurally-estimated lifecycle model predicts that the long-term effect of auto-enrollment on wealth is negligible except at the bottom of the earnings distribution. The observed inertia at the savings default is explained by an optout cost of around $250. My estimate is smaller than the thousands of dollars estimated in previous studies because non-autoenrolled workers can compensate for not contributing now by contributing more later. Auto-enrollment improves welfare if the policymaker is paternalistic or has strong redistributive preferences.

Featured Publication

"Default Options and Retirement Saving Dynamics."

Choukhmane, Taha, MIT Sloan Working Paper 6134-20. Cambridge, MA: MIT Sloan School of Management, June 2021.

Learn More about Retirement

Current Retirement projects from the Consumer Finance Initiative cover topics including Target Date Funds, retirement savings and portfolio choices, and racial gaps in retirement savings. Find more Retirement research here.