The Pension Research Council
Working Paper

"Money Attitudes" and Retirement Plan Design: One Size Does Not Fit All

Donna M. McFarland, Carolyn D. Marconi, and Stephen P. Utkus
WP2003-11

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Abstract

With the growth of defined contribution retirement plans, plan participants are increasingly expected to behave like financial planners, optimizing a series of saving, investment, tax, and spending decisions throughout their lives. Yet just as individuals have varying tastes in saving, we illustrate that participants in retirement plans have varying tastes for the types of financial planning activities needed to ensure success in those plans. Workers can be classified into five "money attitude" segments, with markedly different preferences for savings behavior, equity risk taking, and retirement planning.

Our analysis suggests that a significant group of workers lacks the psychological attitudes or interests needed to maximize retirement security. Our results have important implications for the degree of participant direction in retirement programs; the role of negative elections and default options in plans, and the design of programs to enhance worker financial literacy.