NUFFIELD CENTRE FOR EXPERIMENTAL SOCIAL SCIENCES DISCUSSION PAPER SERIES

The behavioral economics literature on time discounting has suggested that individuals may systematically undersave when planning for retirement. Hence, pension systems have developed to enable, or indeed force, individuals to save more for retirement. Of course, the saving aspect and the timing of retirement are connected, in the sense that the expected length of retirement determines what is meant by adequate post-retirement resources, and vice versa. Despite this, the timing aspect rarely enters into policy discussions, although the same behavioural phenomena that lead to undersaving – in this paper, myopia and present bias – may also have implications for the retirement decision. Moreover, the form of pension payments may also affect the timing decision when individuals do not have time consistent preferences. This paper presents a model of saving and retirement timing where saving rates are mandated, and pension payment may come in either a lump-sum or an annuity. It tests the model using data collected through a new experiment. The experimen