Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258684 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 12 [Article No.:] 581 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-13
Publisher: 
MDPI, Basel
Abstract: 
We portray the valuation of retirement savings in terms of a mental time travel journey in which a proposed contribution to a pension plan is projected forward to the plan member's retirement date and this projected value is then discounted back to today, thereby giving a present or personal value. We set this within a broader framework of pension planning, which seeks to smooth consumption over the lifecycle. We explain how two psychological biases-exponential growth bias and present bias-can lead to a difference between the initial value of a pension contribution and its present value, such a difference reflecting an asymmetry between projection and discounting, and how such a difference might lead to inadequate retirement savings and hence to a lower than desired standard of living in retirement. We consider how the two biases might be mitigated.
Subjects: 
retirement savings
lifecycle model
financial investment valuation
mental time travel
time perception
projecting
exponential growth bias
discounting
present bias
symmetric
asymmetric
valuation
JEL: 
G04
G51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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