chapter  5
28 Pages

Do Workers Prepare Rationally for Retirement?

ByGary Burtless

There are two views of workers’ farsightedness in choosing a retirement age and implementing a lifetime saving plan. One view is that workers select their retirement age and saving strategy based on a rational and forward-looking plan. The plan is formed on the basis of good information about the worker’s own preferences, the financial rewards from working, and the pros and cons of retiring at different ages. An opposing view is that many workers do not plan very far ahead in either choosing their retirement age or saving for retirement. Many use naïve rules of thumb when deciding when to leave work permanently, and a large minority do not have the ability to formulate a good saving plan or the self-command to stick to a sensible saving plan if one is proposed to them.