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Early Retirement Windows

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  • Charles Brown

    (University of Michigan and National Bureau of Economic Research)

Abstract

An early retirement window is an offer, by an employer, of a special incentive to retire at a particular time, beyond that provided by the firm's pension plan. While such windows have attracted increasing attention in the academic literature and the business press, most of our current knowledge about them is based on case studies or compensation consultants' surveys of their clients. The Health and Retirement Study provides an opportunity to analyze the incidence and consequences of such offers among a representative sample of workers who are in the age range (51-61 in 1992) where such windows may be important. HRS data suggest that window offers increased in the early 1990s. At their peak in the mid- 1990s, employers were making about 5 offers per 100 workers age 55-59. One third of the offers were accepted. The economic impact of window offers depends on the extent to which those who accept such offers would have left the employer soon anyway, and those who are induced to leave one employer go to work elsewhere. But multiplying the frequency of such offers by the acceptance rate suggests a substantial potential impact on the employment of workers in the HRS age range. Window offers are generally made to workers in "career" jobs. Such workers have aboveaverage education, tenure with employer, and earnings. The attachment between the employer and such workers is often strengthened by defined-benefit pension plans, which discourage leaving before the early-retirement age of the pension plan but often also provide sharp incentives to leave "on time". Workers who received window offers were closer to early retirement age (as defined by their pension plan), and were expecting to retire sooner than other workers. Thus, one might expect that those who receive window offers would have retired earlier than other workers, even without the special window incentive. On the other hand, those receiving window offers are better paid and in better health than the average worker, and these differences would encourage them to retire later. Workers who received window offers worked in jobs that had cognitive rather than physical demands, and there is some evidence that those most affected by technological change were more likely to receive an offer. Window offers with "up front" cash incentives offer, on average, six to eight months pay; those featuring increased pension benefits are more generous. Accepted offers tended to be those with more generous cash incentives and were more likely to include increased pension benefits, increased "service credit" (which indirectly raises pension benefits), and health insurance. Those who received window offers are less likely to be working at subsequent waves of the HRS; this effect is larger at the interview following the window offer (where those receiving an offer are 15 percentage points less likely to be employed), but declines fairly rapidly thereafter. Controlling for a wide variety of variables that are related to receiving a window offer and to the probability of being employed does not change the short-run impact significantly, but increases the rate at which the impact declines in later waves.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp028.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp028.

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Length: 32 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:mrr:papers:wp028

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References

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  1. Gustman, A.L. & Mitchell, O.S. & Steinmeier, T.L., 1993. "The Role of Pensions in the Labor Market," Papers 93-07, Cornell - Center for Advanced Human Resource Studies.
  2. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1990. "Efficient Windows and Labor Force Reduction," NBER Working Papers 3369, National Bureau of Economic Research, Inc.
  3. Charles Brown, . "Early Retirement Windows," Pension Research Council Working Papers 98-17, Wharton School Pension Research Council, University of Pennsylvania.
  4. Jeanne M. Hogarth, 1988. "Accepting an Early Retirement Bonus an Empirical Study," Journal of Human Resources, University of Wisconsin Press, vol. 23(1), pages 21-33.
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Cited by:
  1. Randall Filer & Marjorie Honig, 2005. "Endogenous Pensions and Retirement Behavior," CESifo Working Paper Series 1547, CESifo Group Munich.
  2. Charles Brown, . "Early Retirement Windows," Pension Research Council Working Papers 98-17, Wharton School Pension Research Council, University of Pennsylvania.
  3. Daniel Hallberg, 2011. "Economic Fluctuations and Retirement of Older Employees," LABOUR, CEIS, vol. 25(3), pages 287-307, 09.
  4. Coe, Norma B. & Lindeboom, Maarten, 2008. "Does Retirement Kill You? Evidence from Early Retirement Windows," IZA Discussion Papers 3817, Institute for the Study of Labor (IZA).
  5. Leora Friedberg & Anthony Webb, 2005. "Retirement and the Evolution of Pension Structure," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
  6. Leora Friedberg & Michael Owyang, 2004. "Explaining the Evolution of Pension Structure and Job Tenure," NBER Working Papers 10714, National Bureau of Economic Research, Inc.
  7. John Laitner & Dan Silverman, 2007. "Life-Cycle Models: Lifetime Earnings and the Timing of Retirement," Working Papers wp165, University of Michigan, Michigan Retirement Research Center.
  8. John Laitner, 2003. "Labor Supply Responses to Social Security," Working Papers wp050, University of Michigan, Michigan Retirement Research Center.
  9. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1994. "Retirement Research Using the Health and Retirement Survey," NBER Working Papers 4813, National Bureau of Economic Research, Inc.
  10. repec:hal:wpaper:halshs-00566855 is not listed on IDEAS
  11. Alan L. Gustman & Thomas L. Steinmeier, 2004. "Minimum Hours Constraints, Job Requirements and Retirement," NBER Working Papers 10876, National Bureau of Economic Research, Inc.
  12. Alan L. Gustman & Thomas L. Steinmeier, 2004. "How to Evaluate the Effects of Social Security Policies on Retirement and Saving When Firm Policies Affect the Opportunities Facing Older Individuals," Working Papers wp078, University of Michigan, Michigan Retirement Research Center.

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