Mortality transition and differential incentives for early retirement

Abstract

Many studies specify human mortality patterns parametrically, with a parameter change affecting mortality rates at different ages simultaneously. Motivated by the stylized fact that a mortality decline affects primarily younger people in the early phase of mortality transition but mainly older people in the later phase, we study how a mortality change at an arbitrary age affects optimal retirement age. Using the Volterra derivative for a functional, we show that mortality reductions at older ages delay retirement unambiguously, but that mortality reductions at younger ages may lead to earlier retirement due to a substantial increase in the individual's expected lifetime human wealth.JEL Classification Numbers: D91; J11; J26 Keywords: mortality decline; incentive for early retirement; yearsto-consume effect; lifetime human wealth effect * We are grateful to Robert Canwell, Malene Kallestrup-Lamb, Takuma Kunieda, Alexander Ludwig, Vai-Lam Mui, Jim Vere, participants of various seminars/conferences, an Associate Editor and three referees for helpful comments and suggestions, and to Zhipeng Cai and Zhuojiong Gan for efficient research assistance. Hippolyte d'Albis, S.

Optimal Retirement with Increasing Longevity

“…In principle, we could have changes in the mortality rate at any age, with other mortality rates being fixed, as D'Albis et al . () assume. However, in practice, age‐specific mortality rates within a country tend to move together in the same direction over time.…”

“…While increases in life expectancy usually lead to later optimal retirement, in theory it is possible for the reduction in age-specific mortality rates at young ages to lead to earlier retirement (D'Albis et al, 2012). We focus on whether the rise in retirement age will be more or less proportional to the increase in life expectancy.…”

50 is the new 30—long-run trends of schooling and retirement explained by human aging

“…Restuccia and Vandenbroucke (2013) propose non-homothetic preferences (subsistence needs) and the demand of education for pleasure as the potential drivers of schooling and retirement behavior. There exists also a related literature discussing the interaction of health, life expectancy, and labor supply independently from schooling behavior (Heijdra and Romp 2009;Bloom et al, 2011;Kalemli-Ozcan and Weil, 2011;d'Albis et al, 2012;Kuhn et al, 2012, Dalgaard andStrulik, 2012) and a large (mostly empirical) literature investigating the association between health and education (for surveys see Grossman, 2006;Cutler and Lleras-Muney, 2006;Cutler et al, 2011).…”

Health, education, and retirement over the prolonged life cycle: a selective survey of recent research

“…Recently, several authors have shown that the age pattern of the mortality decline may play a decisive role in whether the retirement age decreases or increases with longevity. In particular, it has been shown that mortality declines during adulthood may cause earlier retirement, while reductions in mortality at older ages may lead to delayed retirement (d'Albis et al 2012, andStrulik andWerner, 2012). The trend towards earlier retirement caused by a decline in adult mortality may be explained by the increase in the expected lifetime human wealth effect when mortality at working ages decreases.…”