Time Will Tell: Determinants and Significance of Financial Planning Horizon Changes

Abstract

Recent studies have demonstrated that individuals' financial planning horizons significantly impact their economic decisions, such as saving propensities, credit card usage behaviors, investment choices, retirement decisions, as well as estate planning engagements. Motivated by the profound implications and impacts of people's financial planning horizon variations, this study investigates the determinants of individuals' financial planning horizons both cross-sectionally and longitudinally. Using the Health and Retirement Study (HRS) data, the analyses in this paper reveal that older American adults' financial planning horizons are strongly determined by their self-perceived life expectancy. Over time, the changes in self-perceived life expectancy, marital and retirement status, health conditions, and wealth level will cause individuals to shift their financial planning horizons. The insight gained in this study helps financial planners to better understand the factors driving the changes of their clients' financial planning horizons and how to encourage them to expand their planning horizons.

Keywords: Financial Planning Horizon, Self-perceived Life Expectancy, Financial Decision Making

JEL Classification: D12, G02, D10, G4