Overconfidence, Knowledge of the Retirement Income System, and Retirement Planning
This paper also appeared as a GRI Report
Philippe d’Astous and Franca Glenzer
Working Paper #22
Retirement and Savings Institute – February 2026
This paper examines how confidence (and overconfidence) in one’s financial ability shapes retirement planning decisions. Using survey responses that combine objective and subjective measures of financial literacy and knowledge of the retirement system, the authors show that overconfident individuals are more likely to report having a retirement plan, but are less likely to hold registered retirement savings and, when they do, they hold lower balances. The findings highlight a potential mechanism whereby overconfidence in one’s understanding of the retirement system increases expected income replacement rates, which—consistent with a standard consumption–saving model—reduces private saving. Overconfident individuals also display biased inflation perceptions while taking fewer protective actions to mitigate inflation’s effects. Finally, the authors find that overconfidence is associated with declining scores with repeated participation across different survey waves. These results suggest that better calibrating confidence in one’s knowledge of the retirement system and macroeconomic factors may be important for improving private retirement saving.