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Integrating Retirement Models

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  • Alan L. Gustman
  • Thomas Steinmeier

Abstract

This paper advances the specification and estimation of models of retirement and saving in two earner families. The complications introduced by the interaction of retirement decisions by husbands and wives have led researchers to adopt a number of simplifications to increase the feasibility of estimating family retirement models. Our model relaxes these restrictions. It includes the extended choice set created when each spouse makes an independent retirement decision. It also includes the full range of complexity found in dynamic-stochastic models of retirement decision making, so far analyzed only in the context of single earner households. Retirement outcomes include full retirement, partial retirement and full-time work. Reverse flows from states of lesser to greater work are also included. The preference structure incorporates heterogeneity in time preference, varying taste parameters for full-time and part-time work, and the possibility of changes in preferences after retirement. The opportunity set reflects the full range of nonlinearities created by pensions and Social Security. Financial returns are stochastic. Exogenous shocks such as layoffs are also included. Estimation is based on data from the Health and Retirement Study. The solution method is based on backward induction. We show that this method is superior to a method based on a Nash equilibrium, providing plausible behavioral predictions when Nash equilibrium criteria fall silent. In contrast to some recent studies, the findings suggest the flow of wives into the labor force in the last few decades has probably reduced the amount of husbands’ work. The model also provides plausible responses to various policies. For example, we find that any effort to promote opportunities for partial retirement as a means to increase overall work is likely to be unsuccessful as any induced decline in full retirements is offset by a decrease in full-time work.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15607.

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Date of creation: Dec 2009
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Handle: RePEc:nbr:nberwo:15607

Note: AG LS PE
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  1. Michaud, P.C., 2003. "Joint Labour Supply Dynamics of Older Couples," Discussion Paper 2003-69, Tilburg University, Center for Economic Research.
  2. Cherchye, Laurens & De Rock, Bram & Vermeulen, Frederic, 2005. "Opening the Black Box of Intra-Household Decision-Making: Theory and Non-Parametric Empirical Tests of General Collective Consumption Models," IZA Discussion Papers 1603, Institute for the Study of Labor (IZA).
  3. Wilbert van der Klaauw & Kenneth I. Wolpin, 2005. "Social Security and the Retirement and Savings Behavior of Low Income Households," PIER Working Paper Archive 05-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Hugo Benitez-Silva & Moshe Buchinsky & Hiu Man Chan & Sofia Cheidvasser & John Rust, 2000. "How Large is the Bias is Self-Reported Disability?," NBER Working Papers 7526, National Bureau of Economic Research, Inc.
  5. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  6. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  7. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  8. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
  9. Krueger, Alan B & Pischke, Jorn-Steffen, 1992. "The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 412-37, October.
  10. Donna B. Gilleskie & David M. Blau, 2006. "Health insurance and retirement of married couples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 935-953.
  11. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  12. Berkovec, James & Stern, Steven, 1991. "Job Exit Behavior of Older Men," Econometrica, Econometric Society, vol. 59(1), pages 189-210, January.
  13. Michael D. Hurd, 1988. "The Joint Retirement Decision of Husbands and Wives," NBER Working Papers 2803, National Bureau of Economic Research, Inc.
  14. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
  15. Courtney Coile, 2003. "Retirement Incentives and Couples' Retirement Decisions," NBER Working Papers 9496, National Bureau of Economic Research, Inc.
  16. Hugo Benitez-Silva & Moshe Buchinsky & Hiu-Man Chan & John Rust & Sofia Sheivasser, 1997. "An Empirical Analysis of the Social Security Disability Application, Appeal, and Award Process," Public Economics 9712001, EconWPA, revised 16 Feb 1998.
  17. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
  18. John Bound & Todd Stinebrickner & Timothy Waidmann, 2007. "Health, Economic Resources and the Work Decisions of Older Men," University of Western Ontario, Economic Policy Research Institute Working Papers 20076, University of Western Ontario, Economic Policy Research Institute.
  19. Blau, David M., 1997. "Social security and the labor supply of older married couples," Labour Economics, Elsevier, vol. 4(4), pages 373-418, December.
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Citations

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Cited by:
  1. Elena Stancanelli, 2012. "Spouses' Retirement and Hours of Work Outcomes : Evidence from Twofold Regression Discontinuity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00755648, HAL.
  2. Stancanelli, Elena G. F., 2012. "Spouses' Retirement and Hours Outcomes: Evidence from Twofold Regression Discontinuity with Differences-in-Differences," IZA Discussion Papers 6791, Institute for the Study of Labor (IZA).
  3. ICHIMURA Hidehiko & SHIMIZUTANI Satoshi, 2011. "Retirement Process in Japan: New evidence from Japanese Study on Aging and Retirement (JSTAR)," Discussion papers 11080, Research Institute of Economy, Trade and Industry (RIETI).
  4. Elena Stancanelli & Arthur Van Soest, 2012. "Jointleisure before and after retirement :A double regression discontinuity approach," Documents de Travail de l'OFCE 2012-23, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Laura Hospido & Gema Zamarro, 2013. "Retirement patterns of couples in Europe," Banco de Espa�a Working Papers 1317, Banco de Espa�a.
  6. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2011. "How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?," Working Papers wp253, University of Michigan, Michigan Retirement Research Center.
  7. repec:hal:journl:halshs-00755648 is not listed on IDEAS
  8. Nicolas Moreau & Elena Stancanelli, 2013. "Household Consumption at Retirement: A Regression Discontinuity Study on French Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881215, HAL.
  9. Bo Honoré & Áureo de Paula, 2011. "Interdependent Durations in Joint Retirement," Working Papers, Center for Retirement Research at Boston College wp2011-5, Center for Retirement Research, revised Feb 2011.
  10. Nicolas Moreau & Elena Stancanelli, 2013. "Household Consumption at Retirement: A Regression Discontinuity Study on French," Documents de travail du Centre d'Economie de la Sorbonne 13072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  11. repec:hal:journl:halshs-00768901 is not listed on IDEAS

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