Subjective Beliefs, Saving, and Spending for Retirement

Heimer, Rawley Z.

doi:10.1093/oso/9780197845752.003.0003

Chapter in Retirement Saving, Investment, and Spending: New Lessons from Behavioral Research, edited by Olivia S. Mitchell and Nikolai Roussanov, Oxford University Press

Subjective Beliefs, Saving, and Spending for Retirement

Rawley Z. Heimer

Abstract. Beliefs about future events are crucial to the decisions that people make when developing financial plans over the life cycle. Yet peoples’ subjective beliefs can often differ from the objective probabilities that economists and financial planners use in their models. This chapter discusses findings on subjective beliefs, how people might form their beliefs, and how these beliefs affect conclusions drawn from a classical economic life-cycle model. The author highlights a specific divergence between subjective beliefs and objective probabilities: subjective beliefs about peoples’ mortality. Incorporating these subjective mortality beliefs into standard models helps explain observed financial behaviors, including under-saving for retirement and increased risk taking, that are difficult to reconcile using actuarial probabilities alone.

Keywords: subjective beliefs, retirement saving, retirement spending, mortality beliefs, life-cycle model, financial planning.

In brief

People plan for retirement using their own beliefs about the future, and those beliefs often differ from the objective probabilities that economists and financial planners build into their models.

This chapter reviews research on how people form such beliefs and how using them changes the conclusions of a standard life-cycle model of saving and spending. It focuses on one especially consequential gap: what people believe about their own chances of survival.

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Published version, Oxford Academic
Working paper version, SSRN (Pension Research Council Working Paper 2024-13)
DOI: 10.1093/oso/9780197845752.003.0003

Heimer, Rawley Z.. 2026. “Subjective Beliefs, Saving, and Spending for Retirement.” In Retirement Saving, Investment, and Spending: New Lessons from Behavioral Research, edited by Olivia S. Mitchell and Nikolai Roussanov. Oxford University Press. https://doi.org/10.1093/oso/9780197845752.003.0003.

@incollection{heimer2026subjective,
  author    = {Heimer, Rawley Z.},
  title     = {Subjective Beliefs, Saving, and Spending for Retirement},
  booktitle = {Retirement Saving, Investment, and Spending: New Lessons from Behavioral Research},
  editor    = {Mitchell, Olivia S. and Roussanov, Nikolai},
  publisher = {Oxford University Press},
  year      = {2026},
  month     = oct,
  isbn      = {9780197845752},
  doi       = {10.1093/oso/9780197845752.003.0003},
  url       = {https://academic.oup.com/book/63080/chapter/567011483}
}

Topics: Saving, retirement, and inheritance; Behavioral finance and beliefs
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In brief

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