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Early Retirement, Social Security and Well-Being in Germany

In: Developments in the Economics of Aging

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  • Axel Börsch-Supan
  • Hendrik Jürges

Abstract

Germans retire early. On the one hand, early retirement is very costly and amplifies the burden which the German public pension system has to carry due to population aging. On the other hand, however, early retirement is also seen as a much appreciated social achievement which increases the well-being especially of those workers who suffer from work-related health problems. This paper investigates the relation between early retirement and well-being using the GSOEP panel data. The general picture that emerges from our analysis is that early retirement as such seems to be related to subjective well-being, in fact more so than normal retirement. Early retirement most probably is a reaction to a health shock. Individuals are less happy in the year of early retirement than in the years before and after retirement. After retirement, individuals attain their pre-retirement satisfaction levels after a relatively short while. Hence, the early retirement effect on well-being appears to be negative and short-lived rather than positive and long. Whether this is an effect of retirement itself or a psychological adaptation to an underlying shock cannot be identified in our data and remains an open research issue waiting for a more objective measurement of health.

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This chapter was published in:

  • David A. Wise, 2009. "Developments in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise09-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11316.

    Handle: RePEc:nbr:nberch:11316

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    1. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2007. "Lags and leads in life satisfaction: a test of the baseline hypothesis," LSE Research Online Documents on Economics 19656, London School of Economics and Political Science, LSE Library.
    2. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
    3. Maarten Lindeboom & France Portrait & Gerard J. van den Berg, 2001. "An Econometric Analysis of the Mental-health Effects of Major Events in the Life of Elderly Individuals," Tinbergen Institute Discussion Papers 01-103/3, Tinbergen Institute.
    4. Simone Kohnz & Reinhold Schnabel, 2002. "Micro Modeling of Retirement Decisions in Germany," MEA discussion paper series 02020, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Bernard M.S. van Praag & B.E. Baarsma, 2000. "The Shadow Price of Aircraft Noise Nuisance," Tinbergen Institute Discussion Papers 00-004/3, Tinbergen Institute.
    6. William Greene, 2001. "Estimating Econometric Models With Fixed Effects," Working Papers 01-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Barbara Berkel & Axel Börsch-Supan, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 393-, September.
    8. Kerwin Kofi Charles, 2002. "Is Retirement Depressing?: Labor Force Inactivity and Psychological Well-Being in Later Life," NBER Working Papers 9033, National Bureau of Economic Research, Inc.
    9. James H. Stock & David A. Wise, 1990. "The Pension Inducement to Retire: An Option Value Analysis," NBER Chapters, in: Issues in the Economics of Aging, pages 205-230 National Bureau of Economic Research, Inc.
    10. Jonathan Gruber & David A. Wise, 2002. "Social Security Programs and Retirement Around the World: Micro Estimation," NBER Working Papers 9407, National Bureau of Economic Research, Inc.
    11. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    12. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
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    Cited by:
    1. Gisela Hostenkamp & Michael Stolpe, 2006. "The Health Gradient and Early Retirement: Evidence from the German Socio-economic Panel," Kiel Working Papers 1305, Kiel Institute for the World Economy.
    2. Montizaan Raymond & Vendrik Maarten, 2012. "Misery loves company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," ROA Research Memorandum 013, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    3. Zsuzsa Kapitany, 2009. "Non-employment, Ill-being and Subjective Well-being," IEHAS Discussion Papers 0922, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    4. Elizabeth Horner, 2014. "Subjective Well-Being and Retirement: Analysis and Policy Recommendations," Journal of Happiness Studies, Springer, vol. 15(1), pages 125-144, February.

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