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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, January.
    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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    References

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    1. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    2. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(529), pages F222-F243, 06.
    3. Lindeboom, Maarten & Portrait, France & van den Berg, Gerard J., 2001. "An Econometric Analysis of the Mental-Health Effects of Major Events in the Life of Elderly Individuals," IZA Discussion Papers 398, Institute for the Study of Labor (IZA).
    4. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, January.
    5. William Greene, 2001. "Estimating Econometric Models With Fixed Effects," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 01-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
    7. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
    8. 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.
    9. Barbara Berkel & Axel Börsch-Supan, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 60(3), pages 393-, September.
    10. 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.
    11. 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.
    12. 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.
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    Cited by:
    1. Montizaan Raymond & Vendrik Maarten, 2012. "Misery Loves Company; Exogenous Shocks in Retirement Expectations and Social Comparison Effects on Subjective Well-Being," Research Memorandum 049, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Elizabeth Horner, 2014. "Subjective Well-Being and Retirement: Analysis and Policy Recommendations," Journal of Happiness Studies, Springer, Springer, vol. 15(1), pages 125-144, February.
    3. 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.
    4. 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.

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