A Structural Retirement Model

Abstract

The model analyzed here constrains most work on the main job to be full time. Partial retirement requires a job change and a wage reduction. Estimates of utility function parameters and their distributions incorporate information on age of leaving the main job and of full retirement. These estimates determine the slope at different ages and the convexity of within period indifference curves between ctpensation and leisure. Even though age specific dunmiy variables are not used, the model closely tracks retirement behavior. Policy analysis based on earlier models with simpler structures is shown to be misleading.

Retirement Timing of Women and the Role of Care Responsibilities for Grandchildren

“…The life-cycle model often has been used in the economics literature in the context of retirement decisions (e.g., Gustman and Steinmeier 1986, Pozzebon and Mitchell 1989, Stock and Wise 1990) to explicitly capture the economic tradeoff between allocating more time to paid work and less time to non-paid-work activity (and as a result earning more) versus allocating less time to paid work and more time to non-paid-work activity (but having less income as a result). Early life-cycle models of retirement focused solely on financial factors as determinants of the retirement decision but more recent studies have incorporated nonpecuniary factors such as health and caring responsibilities.…”

“…In fact, early literature on retirement decisions did not consider familial responsibilities at all but instead concentrated largely on economic and financial considerations such as the effects of pensions and Social Security (e.g., Gustman and Steinmeier 1986; Stock and Wise 1990), as well as individual characteristics such as health (e.g., McGarry 2004). Subsequent economic research highlighted the complexity of retirement decisions and the role that both financial and nonfinancial factors might play in influencing such decisions (see, Lumsdaine 1996 and Lumsdaine and Mitchell 1999, and references therein).…”

Social security and the retirement and savings behavior of low-income households

“…Much of the focus in the initial attempts to formulate and estimate a forward looking model of retirement behavior has been on explaining the empirical regularities of a declining full-time employment rate with age (for males), with particularly large drops at ages 62 and 65, as well as the substantial heterogeneity in retirement behavior across individuals (see Gustman and Steinmeier (1986), Stock and Wise (1990), Berkovec and Stern (1991), Phelan and Rust (1991), Lumsdaine, Stock and Wise (1992,1994,1996), Rust and Phelan (1997), Blau and Gilleskie (2003, 2005)). Besides establishing the importance of health, wealth and labor market opportunities in explaining retirement patterns, these studies also point to the significance of capital and health insurance market imperfections and social security and private pension rules.…”

“…The models on which these results are based do not allow households to save, thereby removing an important instrument through which to smooth consumption (and facilitate early retirement) and to self-insure against future health expenditures. Gustman and Steinmeier (1986,1994) instead make the alternative extreme assumption of perfect capital markets, in which individuals can freely borrow against future earnings and pension income, an assumption that is likely to lead to an underestimation of the importance of social security and employer linked health insurance.…”

Disability benefit generosity and labor force withdrawal

“…The negative effects of this trend on economic growth and public expenditure are exacerbated by falling fertility rates and significant increases in average life expectancy. While retirement incentives arising explicitly from public old age pension systems (i.e., Social Security) have been well explored (see, e.g., Burtless 1986, Gustman and Steinmeier 1986, Stock and Wise 1990, Berkovec and Stern 1991, Blau 1994, Phelan and Rust 1997, Gruber and Wise 2004, French 2005), the impact of financial incentives arising from alternative retirement channels, most notably disability insurance (DI), still lacks a careful analysis. Although recent studies (e.g., Maestas, Mullen and Strand, 2013) have demonstrated convincingly that substantial work capacity exists among marginal DI program entrants, credible estimates of the effect of DI benefit levels on individuals’ labor force participation and claiming decisions have remained elusive due to lack of exogenous variation in DI benefits, which in most countries are determined by a single function of past earnings and work experience.…”