NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany

Hendrik Juerges, Lars Thiel, Tabea Bucher-Koenen, Johannes Rausch, Morten Schuth, Axel Boersch-Supan

NBER Working Paper No. 19889
Issued in February 2014
NBER Program(s):   AG

About 20% of German workers retire on disability pensions. Disability pensions provide fairly generous benefits for those who are not already age-eligible for an old-age pension and who are deemed unable to work for health reasons. In this paper, we use two sets of individual survey data to study the role of health and financial incentives in early retirement decisions in Germany, in particular disability benefit uptake. We show that financial incentives to retire do affect sick individuals at least as much as healthy individuals. Based on 25 years of individual survey data and empirical models of retirement behavior, we then simulate changes in the generosity of disability pensions to understand how these changes would affect retirement behavior. Our results show that making the disability benefit award process more stringent without closing other early retirement routes would not greatly increase labor force participation in old age.

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Document Object Identifier (DOI): 10.3386/w19889

Published: Health, Financial Incentives, and Early Retirement: Microsimulation Evidence for Germany, Hendrik Jürges, Lars Thiel, Tabea Bucher-Koenen, Johannes Rausch, Morten Schuth, Axel Börsch-Supan. in Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, Wise. 2016

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