Savings Adequacy Uncertainty: Driver or Obstacle to Increase Pension Contributions

Abstract

Deciding how much to save for retirement is a difficult task surrounded with many uncertainties. In this paper we study the impact of uncertainty about one’s savings adequacy on retirement savings contributions and information search. We combine ideas from literature in psychology and economics that have opposing predictions for the impact of uncertainty on retirement savings contributions. Accordingly, our results show that the effect of uncertainty is moderated by two factors: an individual’s perceived adequacy of current savings and financial constraints. In particular, we find that uncertainty triggers retirement contributions for those who think they save adequately. At the same time it hinders retirement contributions for those who think they save inadequately. This effect of uncertainty is further moderated by the availability of financial means: a reduction in uncertainty results in more savings contributions only when financial constraints are absent. Concerning the effect of uncertainty on savings information search, we find that uncertainty not only has an indirect effect – because uncertainty affects individuals’ intention to save more for which individuals need to engage in purchase-oriented information search – but that uncertainty also has a direct effect because individuals engage in ongoing information search to directly reduce uncertainty. Implications of these findings are discussed.

Keywords: uncertainty, savings adequacy, retirement, financial decision making