Retirement and Wealth

Alan L. Gustman, Thomas L. Steinmeier

NBER Working Paper No. 8229
Issued in April 2001
NBER Program(s):Program on the Economics of Aging, Labor Studies Program, Public Economics Program

This paper estimates reduced form retirement and wealth equations, and analyzes the relationship between them. Data are from the first four waves of the longitudinal Health and Retirement Study, individuals born from 1931 to 1941. Single equation retirement models relate the probability of retiring to forward looking measures of changes in the values of social security and pension benefits when retirement is postponed. Such simple models suggest that if the social security early retirement age were to be raised or abolished, more people would retire earlier rather than later. Our work analyzes the reasons for such counter intuitive predictions, and discusses the need to analyze these policies in the context of a structural model of retirement and wealth. To improve retirement analysis, we develop the premium value, a measure of the future value of pensions and social security that better reflects the accrual of benefits under defined contribution plans. We also introduce a new definition of retirement to blend information on objective hours worked with subjective self reports of retirement status. Our findings also explore the effects of social security incentives on partial retirement, and consider the importance of partial retirement in any study relating social security to retirement behavior.

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Document Object Identifier (DOI): 10.3386/w8229

Published: Gustman, Alan L. and Thomas L. Steinmeier. "Retirement and Wealth." Social Security Bulletin 64, 2 (2001-2002): 66-91.

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