An interdisciplinary approach to the modeling of retirement planning practices

Douglas Hershey, Netherlands Institute for Advanced Studies

Many westernized societies will face significant economic challenges in the coming decades when attempting to provide adequate public pension benefits for future retirees. This widely anticipated pension financing shortfall will result from shifting population dynamics (i.e., the graying of the baby boomers) and the all too common tendency of individuals to delay planning and saving for old age. Unfortunately, only bits and pieces are known about the field of forces that motivate workers to save for the post-employment period. In this study, we examine the perceived savings adequacy of workers and its determinants. We extend an empirically-grounded psychological model of retirement planning (Hershey et al, 2007) by incorporating into it social and economic forces thought to be associated with retirement savings. These forces were examined in a cross-cultural context, using data drawn from respondents in the Netherlands and United States. Participants were 496 Dutch and 419 American adults, 25-64 years of age. All individuals completed a questionnaire that assessed psychological, social, and economic determinants of retirement savings practices. Separate regression analyses were carried out for each country in which three different sets of predictor variables (psychological, social, and economic) were used to predict savings adequacy. In addition, a full model was tested that included economic, social and psychological determinants. Findings revealed striking differences across countries among the variables predictive of the criterion, as well as cross-cultural differences in the robustness of the models. Whereas psychological and social forces dominate the perceived savings adequacy of American workers, Dutch workers are largely influenced by economic contingencies, such as the quality of their employer’s pension and public pension programs. These findings suggest policy analysts should take into account individual, contextual, economic and cultural differences when formulating pension reforms that stress individual responsibility for planning and saving.