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Hyperbolic Discounting: The Empirical Evidence of Required Minimum Distribution Spending
Short Abstract
Retirees are struggling with sensible decumulation decisions. Those who have present-bias preferences may be most vulnerable to spending too much early in retirement. Using 2010 wave of the Health and Retirement Study, we investigate the effect of hyperbolic preferences on required minimum distribution (RMD) spending using binomial logistic regression. We find evidence that more hyperbolic individuals are more likely to spend the RMD than those with less hyperbolic preference score. However, cognitive ability is not associated with decision to spend the RMD among retirees. Understanding the spending decisions among retirees has important implications for policy since it highlights the unintended consequence of reducing longevity risk through endorsement of a smooth consumption path from defined contribution savings.