Broad Framing in Retirement Income Decision Making

Retirees often narrowly bracket retirement income decisions, myopically considering OASI claiming age, pension or 401(k) payouts, annuity purchases, long term care insurance, and use of home equity as independent and unrelated decisions. Prior research on narrow versus broad framing in financial decisions regularly finds that this type of narrow decision framing can cause individuals to accept lower risk, lower value outcomes, whereas a more broadly bracketed set of options can lead to more optimal aggregated choices. In this paper, we use a custom-built retirement decision aid to test how aggregating outcomes across different retirement funding sources, which has previously been unexplored, affects retirement decisions. In particular, we present two studies that experimentally test whether people select systematically different investment risk allocations, wealth drawdown strategies, annuity decisions, and SSA claiming intentions when they are shown the aggregated outcome of the decisions or each piece individually. We find that decisions can be affected by aggregating outcomes, that individuals report higher satisfaction with their decisions when made in an aggregated environment, but that they also indicate that the outcomes they have chosen are less desirable in hindsight than other possible retirement income paths.