Retirement Incentives and Expectations

This paper investigates the responsiveness of individuals' retirement expectations to forward-looking measures of pension wealth accumulations. While most of the existing literature on retirement has used cross-sectional variation to identify the effects of pension and Social Security wealth on retirement behavior, we estimate fixed-effects regressions to control for unobserved heterogeneity that might be correlated with retirement plans and wealth. As expected, we find significant effects of future pension wealth accumulations on retirement expectations, but the magnitude of these effects differs substantially between OLS and fixed-effects estimation. Coefficients from fixed-effects estimation are at most half the magnitude of similar OLS regressions. Our results point to potentially large biases from the failure to control for unobserved heterogeneity in empirical models of retirement-related outcomes.