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Achieving American Retirement Prosperity by Changing Americans' Thinking About Retirement University of Colorado Law School Colorado Law Scholarly Commons Articles Colorado Law Faculty Scholarship 2017 Achieving American Retirement Prosperity by Changing Americans' Thinking About Retirement Peter H. Huang University of Colorado Law School Follow this and additional works at: https://scholar.law.colorado.edu/articles Part of the Law and Economics Commons, Law and Psychology Commons, Law and Society Commons, Retirement Security Law Commons, Science and Technology Law Commons, Taxation-Federal Commons, and the Tax Law Commons Citation Information Peter H. Huang, Achieving American Retirement Prosperity by Changing Americans' Thinking About Retirement, 22 STAN. J.L. BUS. & FIN. 189 (2017), available at https://scholar.law.colorado.edu/articles/ 1188. Copyright Statement Copyright protected. Use of materials from this collection beyond the exceptions provided for in the Fair Use and Educational Use clauses of the U.S. Copyright Law may violate federal law. Permission to publish or reproduce is required. This Article is brought to you for free and open access by the Colorado Law Faculty Scholarship at Colorado Law Scholarly Commons. It has been accepted for inclusion in Articles by an authorized administrator of Colorado Law Scholarly Commons. For more information, please contact [email protected]. +(,121/,1( Citation: Peter H. Huang, Achieving American Retirement Prosperity by Changing Americans' Thinking about Retirement, 22 Stan. J.L. Bus. & Fin. 189 (2017) Provided by: William A. Wise Law Library Content downloaded/printed from HeinOnline Mon Jan 22 12:51:51 2018 -- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and Conditions of the license agreement available at http://heinonline.org/HOL/License -- The search text of this PDF is generated from uncorrected OCR text. -- To obtain permission to use this article beyond the scope of your HeinOnline license, please use: Copyright Information Use QR Code reader to send PDF to your smartphone or tablet device Achieving American Retirement Prosperity by Changing Americans' Thinking About Retirement* Peter H. Huang* Abstract: There are many decisions that Americans have to make about retirement before, at, and after retirement. For example, Americans have to decide when to start saving for retirement, how much to save, how to invest those savings, when to retire, when to claim social security, and how to take required minimum distributions from 401(k) plans or Individual Retirement Accounts. Different things can go wrong at each of these decisions for different reasons. Many Americans, for various reasons, including insufficient energy, money, motivation, time, and understanding, do no retirement planning. Some Americans do some retirement planning, yet worry they are doing insufficient or ineffective retirement planning. A few knowledgeable or wealthy Americans do, or have done for them, sufficient and effective retirement planning. Insufficient or ineffective retirement planning causes Americans to experience decreased financial wealth, health, objective living standards, and subjective well-being in addition to suffer increased anxiety, depression, stress, and worry. Our American economy also has to deal with the resulting negative externalities of many Americans retiring into poverty. This Article analyzes how Americans can achieve retirement prosperity by changing their thinking about retirement. This Article advocates the American federal government educate Americans in thinking about retirement to utilize more thinking tools, think more mindfully, and think more societally. This Article's proposals are based on and introduce to retirement planning the field of cognitive economics. Thanks to Rebecca Huss, Terry Odean, Thomas Philips, Paul Secunda, Sloan Speck, Jack Towarnicky, Lauren Willis, and the audiences of the Age Well Conference; Behavioral Finance, Retirement Planning, and Investors' Decision-Making session of the annual meeting of the Academy of Behavioral Finance & Economics; Certified Financial Planning Board Academic Research Colloquium for Financial Planning and Related Disciplines; Pacific Southwest Academy of Legal Studies in Business Annual Conference; University of Colorado Law School Works-In-Progress workshop; and Western Economic Association International Annual Conference for thoughtful conversations, discussions, and suggestions. Professor and DeMuth Chair of Business Law, University of Colorado Law School. Visiting Scholar, Loyola Los Angeles Law School. J.D., Stanford Law School; Ph.D., Harvard University; A.B., Princeton University. 189 190 Stanford Journalof Law, Business & Finance Vol 22:2 INTRODUCTION ............................................ ...... 191 I. America's Retirement Crisis ............................................. 201 A. A Broken Three-Legged Stool................................203 B. Retirement Survey Data .................................... 213 C. Elder Financial Abuse ............................................... 218 II. American Retirement Policies .......................................... 221 A. Legislation: The Fiduciary Rule and More ............ ......... 222 B. Automation: Nudging and Mindless Retirement Planning .... ...... 225 C. Education: Financial Literacy? .......... 231 III. Changing Americans' Thinking About Retirement .............. ..... 235 A. Thinking Architecture ......................................... 242 B. Thinking Technology. ................................ ...... 245 C. Thinking Mindfully .............................................. 250 D. Thinking Societally ........................................ 253 CONCLUSIONS ................................................... 256 Fall 2017 Achieving American Retirement Prosperity 191 INTRODUCTION In a November 29, 2015 Wall Street Journal article about the key to retirement savings,' Robert Powell's final question to behavioral economist Richard Thaler was: "Peter Huang, a professor at the University of Colorado Law School in Boulder, suggests in a recent paper, Empowering People to Choose Wisely by Democratizing Mindfulness and Thinking Tools, 2 that law and policy can and should empower people to choose wisely for themselves by educating people. What say you?" Thaler's answer was "I'm all for empowerment and education, but the empirical evidence is that it doesn't work. That's why I say make it easy." While it is ironic for an educator to state the empirical evidence is that education to empower people does not work, current empirical data on the efficacy of traditional financial literacy education is at best mixed.3 Naturally, education can take on many forms, including not being about traditional financial literacy. Experiments "suggest that offering investor education, even in the form of a simple instruction, can make a substantial difference." 4 Also, making it easy may cause individually and socially undesirable outcomes for such financial decisions as applying for mortgages.' Additionally, if something is easy, people may not do it because it lacks immediacy. How about making retirement planning engaging and fun? A study of 1,031 South Africans employed a symmetric encouragement design to randomly assign people to watch a television soap opera "Scandal!" with scripted, targeted financial messages about debt management and gambling versus "Muvhango" a similar soap opera without financial messages. 6 The soap operas had similar past viewership profiles and 1. Robert Powell, Behavioral Economist Richard Thaler on the Key to Retirement Savings, WALL ST. J., Nov. 29, 2015, 10:53 PM E.T., http://www.wsj.com/articles/behavioral-economist- richard-thaler-on-the-key-to-retirement-savings-1448852602. 2. Peter H. Huang, Empowering People to Choose Wisely by Democratizing Mindfulness and Thinking Tools, Nov. 1, 2015, http://papers.ssm.com/sol3/papers.cfm?abstractid=2639953. See also Peter H. Huang, Can PracticingMindfulness Improve Lawyer Decision-Making, Ethics, and Leadership?55 HOUSTON L. REV 63, 79-101 (2017). 3. Daniel Fernandes et al., Financial Literacy, Financial Education and Downstream Financial Behaviors, 60 MGMT. SCI. 1861, 1862 (2014); Andreas Maaloe Jespersen, What Financial Behavior Can Learn From Foraging, Nov. 17, 2013, http://inudgeyou.com/what-financial- behavior-can-leam-from-foraging/ (discussing this research); Richard H. Thaler, Financial Literacy, Beyond the Classroom, N.Y. TwIES, Oct. 6, 2013, at BU16 (discussing the same). See also William G. Gale et al., Raising Household Saving: Does Financial Education Work?, 72 Soc. SEC. BULL. 39, 39 (2012); Annamaria Lusardi & Olivia S. Mitchell, The Economic Importance of Financial Literacy: Theory and Evidence, 52 J. ECON. LIT., 5, 5 (2014). 4. Jill E. Fisch & Tess Wilkinson-Ryan, Why Do Retail Investors Make Costly Mistakes? An Experiment on Mutual Fund Choice, 162 U. PA. L. REV. 605, 647 (2014). 5. Alexandra Mondalek, Rocket Mortgage Super Bowl Ad Criticized for Encouraging Another Housing Crisis, TIME, Feb. 8, 2016, 1:20 PM, http://time.com/money/4211862/quicken- loans-rocket-mortgage-super-bowl-ad/. 6. Gunhild Berg & Bilal Zia, HarnessingEmotional Connections to Improve Financial Decisions: Evaluating the Impact of Financial Education in Mainstream Media, World Bank Policy 192 Stanford Journal of Law, Business & Finance Vol 22:2 overlapped in evening primetime.7 The financial storyline lasted two consecutive months, involved a leading character borrowing excessively and irresponsibly, gambling, and falling into a debt trap; and eventually
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