Download eBook for Free
| Format | File Size | Notes |
|---|---|---|
| PDF file | 2.5 MB | Use Adobe Acrobat Reader version 10 or higher for the best experience. |
Planning for and managing retirement are inherently complex tasks. Persons with higher overall cognitive functioning may have higher financial literacy and be better equipped to handle such complexity. Since cognitive abilities change with age, often with pronounced declines in fluid or reasoning abilities, as older Americans enter retirement they may be losing the capability to make sound decisions to maximize their own welfare. We examine the relative roles of cognitive ability and financial literacy, and decline in cognitive ability, in influencing retirement-related financial behaviors, such as retirement saving and the decumulation of wealth. We find consistent evidence that when financial literacy and cognitive ability are both used to predict retirement planning behavior, financial literacy tends to have the largest influence on predicted behavior. Accordingly, our evidence supports a conceptualization in which financial literacy is a partial mediator of the relationship between underlying cognitive abilities and resulting behaviors. We also track fluid cognitive ability for individuals longitudinally over time and find that those with steeper cognitive decline are more likely to withdraw from pensions and more likely to claim Social Security at any given age. Together, our results suggest that cognition, and any decline in cognition, matter for retirement financial behaviors.
Table of Contents
Chapter One
Introduction
Chapter Two
Cognitive Ability
Chapter Three
Financial Literacy
Chapter Four
Data
Chapter Five
Results
Chapter Six
Conclusions
This research was conducted by RAND Labor and Population.
This report is part of the RAND Corporation Working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.
This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.