Optimal Default Retirement Savings Rates

Mingli Zhong, The Wharton School at the University of Pennsylvania

Ensuring retirement security is an urgent fiscal challenge confronting our aging society, yet the U.S. Social Security system faces financial shortfalls undermining its ability to pay retirees scheduled benefits. As a result, policymakers are exploring ways to encourage workers to save more for their own retirement and ultimately reduce retirees’ reliance on public transfer programs. One widespread approach drawing national attention is to offer a state-sponsored program for private sector workers who lack access to workplace-based retirement savings plans. As a rule, these programs include automatic enrollment, and many also entail automatic escalation. My research seeks to establish the optimal default retirement savings rate based on the empirical observation of individual responses to such automatic enrollment programs.