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Wealth Shocks and Retirement Timing: Evidence from the Nineties

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Author Info
Purvi Sevak (Hunter College)
Abstract

This paper explores whether the timing of retirement responds to unexpected changes in wealth. Although the normality of leisure is a standard assumption in economic models, econometric support for it has not been consistent. The period of the 1990s allows a reexamination of this question because of the large and unexpected capital gains realized by many households. Using the 1992 to 1998 waves of the Health and Retirement Study, and two different identification strategies, I find evidence consistent with the theoretical expectations of wealth effects. Difference-in-differences estimates suggest that a $50,000 wealth shock would lead to a 1.9 percentage point increase in retirement probability among individuals ages 55 to 60. Estimates using panel data on savings and wealth find the elasticity of retirement flows between 1996 and 1998 with respect to wealth is between 0.39 and 0.50 for men.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp027.

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Length: 53 pages
Date of creation: Apr 2002
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Handle: RePEc:mrr:papers:wp027

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