Savings goals matter–Cognitive constraints, retirement planning, and downstream economic behaviors

Zihan Ye, Thomas Post, Xiaopeng Zou and Shenglan Chen

Journal of Behavioral and Experimental Finance, 2025, vol. 46, issue C

Abstract: We study how cognitive constraints relate to each distinct step of the planning and execution process for retirement, that is, individuals’ propensity to plan, savings goals set, and economic outcomes (wealth accumulation and portfolio choice). We find that different cognitive constraints play distinct roles: Higher advanced financial literacy (and quantitative reasoning ability) predicts a greater propensity to plan, while higher basic financial literacy and verbal cognition predict setting higher savings goals. Math-related abilities are not associated with savings goals in a systematic way. Furthermore, our evidence shows that the economic consequences of retirement planning depend on the earlier set savings goals. In comparison to non-planners, only planners with a higher savings goal (above the median) accumulate more wealth and are more likely to hold risky assets and private annuities. Our findings suggest that when crafting public policy to develop individuals’ retirement readiness, next to improving financial literacy, other targets could be to enhance cognitive skills and to support setting concrete savings goals by, for example, providing better access to planning relevant information and tools.

Keywords: Retirement planning; Savings goal; Financial literacy; Cognitive abilities; Economic behaviors (search for similar items in EconPapers)
JEL-codes: D91 G51 G52 G53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:46:y:2025:i:c:s2214635025000231

DOI: 10.1016/j.jbef.2025.101042

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