Individuals’ Decisions for Discretionary Retirement Saving: A Joint Model of How Much and How to Invest
(A2024-119760)

AUTHORS

Yadi Yang, Erasmus University Rotterdam; Benedict Dellaert, Erasmus University Rotterdam; Onno Steenbeek, APG Asset Management

ABSTRACT

For voluntary retirement saving, consumers need to decide not only how much they wish to increase personal retirement savings, but also the investment risk that they want to be exposed to with their pension savings. Often, these two choices are correlated, and not studying them in a joint manner might lead to a biased understanding. We propose a Multiple Discrete-Continuous Extreme Value (MDCEV) model to capture how the two decisions of how much and how risky to invest are interrelated. Data from a survey of 3,200 U.S. consumers are used to estimate the model. The results show that consumers’ discrete pension investment fund choices are interrelated to their continuous choice of how much to invest. Besides, goals strongly influences both decisions. Consumer heterogeneity such as age, gender, and education level also plays a role in influencing these two decisions.