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The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving

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  • David E. Bloom

    ()
    (Harvard School of Public Health)

  • David Canning

    ()
    (Harvard School of Public Health)

  • Michael Moore

    ()

Abstract

We develop a life-cycle model of optimal retirement and savings behavior under complete markets where retirement is caused by worsening health in old age. Our model explains the long-run decline in the age of retirement as an income level effect. We show that improvements in health and longevity tend to increase the desired retirement age, though less than proportionately, while, contrary to conventional views, reducing savings rates. The retirement age is not simply proportional to healthy lifespan because compound interest creates a wealth effect when lifespan increases, leading to more leisure (early retirement) and higher consumption (lower savings).

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File URL: http://www.hsph.harvard.edu/pgda/WorkingPapers/2005/working_paper2.pdf
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Bibliographic Info

Paper provided by Program on the Global Demography of Aging in its series PGDA Working Papers with number 0205.

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Date of creation: 2005
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Handle: RePEc:gdm:wpaper:0205

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Web page: http://www.hsph.harvard.edu/pgda
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Keywords: Health; longevity; savings; retirement;

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