Academy of Financial Services Annual Meeting 2022

The financial situation of households can change dramatically after retirement. The availability of financial resources affects the subjective financial welfare of the households, but its impact is heterogeneous. Using a within-subject analysis of a representative sample of individuals in Switzerland, this paper analyses whether participating in voluntary retirement saving programs as a way to prepare for retirement can explain the heterogenous response in the subjective welfare of households facing the same change of income after retirement. The results of the analysis reveal that the subjective financial welfare of households experiencing the same income drop after retirement decrease less if they have prepared for retirement. This moderating effect of voluntary savings programs is different from other retirement preparation measures such as owning real estate or building net wealth and it is robust to alternative specification of income and subjective financial welfare. Moreover, the moderating effect of voluntary retirement saving programs does not reflect a mere ability to save. These results show that participation in voluntary retirement savings programs as a way to prepare for retirement can smooth the subjective financial welfare in the presence of negative income shocks after retirement, which widens the perspective of policy makers offering such programs.