Retirement insights from a Colorado PERA perspective

Issues & Perspectives

The Field of Behavioral Finance

Why do so many employees leave their contributions in a plan’s default fund rather than set up a more favorable asset allocation? Why would a retirement plan participant with a long time horizon corral their contributions in an overly conservative fund? Why are participation rates not higher in retirement plans even when employers offer a match? These and many other questions are the subject of behavioral finance, a growing academic field that brings psychology and economics together to address impediments to sound financial behavior. The field of behavioral finance seeks to understand human behavior around financial decisions in order to develop solutions that work in concert with our natural tendencies.

Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.

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