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Retirement and Wealth

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  • Alan L. Gustman
  • Thomas L. Steinmeier

Abstract

This paper estimates reduced form retirement and wealth equations, and analyzes the relationship between them. Data are from the first four waves of the longitudinal Health and Retirement Study, individuals born from 1931 to 1941. Single equation retirement models relate the probability of retiring to forward looking measures of changes in the values of social security and pension benefits when retirement is postponed. Such simple models suggest that if the social security early retirement age were to be raised or abolished, more people would retire earlier rather than later. Our work analyzes the reasons for such counter intuitive predictions, and discusses the need to analyze these policies in the context of a structural model of retirement and wealth. To improve retirement analysis, we develop the premium value, a measure of the future value of pensions and social security that better reflects the accrual of benefits under defined contribution plans. We also introduce a new definition of retirement to blend information on objective hours worked with subjective self reports of retirement status. Our findings also explore the effects of social security incentives on partial retirement, and consider the importance of partial retirement in any study relating social security to retirement behavior.

Suggested Citation

  • Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," NBER Working Papers 8229, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8229
    Note: AG LS PE
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    References listed on IDEAS

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    1. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1995. "Retirement Measures in the Health and Retirement Study," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages 57-83.
    2. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    3. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    4. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307, Elsevier.
    5. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 1-22, March.
    6. Alan L. Gustman & Thomas L. Steinmeier, 1984. "Partial Retirement and the Analysis of Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 37(3), pages 403-415, April.
    7. Coile, Courtney & Diamond, Peter & Gruber, Jonathan & Jousten, Alain, 2002. "Delays in claiming social security benefits," Journal of Public Economics, Elsevier, vol. 84(3), pages 357-385, June.
    8. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
    9. 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.
    10. Alan Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, "undated". "Retirement Measures in the Health and Retirement Survey," Pension Research Council Working Papers 94-2, Wharton School Pension Research Council, University of Pennsylvania.
    11. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    12. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
    13. Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
    14. 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.
    15. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, "undated". "Pension and Social Security Wealth in the Health and Retirement Study," Pension Research Council Working Papers 97-3, Wharton School Pension Research Council, University of Pennsylvania.
    16. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
    17. Alan L. Gustman & Thomas L. Steinmeier, 1999. "What People Don't Know About Their Pensions and Social Security: An Analysis Using Linked Data from the Health and Retirement Study," NBER Working Papers 7368, National Bureau of Economic Research, Inc.
    18. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1980. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
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    Cited by:

    1. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "The Rise of 401(k) Plans, Lifetime Earnings, and Wealth at Retirement," NBER Chapters, in: Research Findings in the Economics of Aging, pages 271-304, National Bureau of Economic Research, Inc.
    2. Gustman, Alan L. & Steinmeier, Thomas L., 2005. "The social security early entitlement age in a structural model of retirement and wealth," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 441-463, February.
    3. Andreas Hubener & Raimond Maurer & Olivia S. Mitchell, 2016. "How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios," The Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 937-978.
    4. Debasree Das Gupta & David W. S. Wong, 2021. "How “Dependent” Are We? A Spatiotemporal Analysis of the Young and the Older Adult Populations in the US," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 40(6), pages 1221-1252, December.
    5. Stefan Hochguertel, 2010. "Self-Employment around Retirement Age," Tinbergen Institute Discussion Papers 10-067/3, Tinbergen Institute.
    6. Chinhui Juhn & Simon Potter, 2006. "Changes in Labor Force Participation in the United States," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 27-46, Summer.
    7. James Marton & Stephen A. Woodbury, 2013. "Retiree Health Benefits as Deferred Compensation," Public Finance Review, , vol. 41(1), pages 64-91, January.
    8. Fabio Pammolli & Pietro Rizza & Nicola Carmine Salerno, 2004. "Regole pensionistiche e incentivi al prolungamento della vita lavorativa: analisi del caso italiano," Working Papers CERM 06-2004, Competitività, Regole, Mercati (CERM).
    9. MacDonald, Bonnie-Jeanne & Cairns, Andrew J.G., 2011. "Three retirement decision models for defined contribution pension plan members: A simulation study," Insurance: Mathematics and Economics, Elsevier, vol. 48(1), pages 1-18, January.
    10. Alan Gustman & Thomas Steinmeier & Nahid Tabatabai, 2014. "Distributional Effects of Means Testing Social Security: An Exploratory Analysis," Working Papers wp306, University of Michigan, Michigan Retirement Research Center.
    11. Fabio Pammolli & Nicola Carmine Salerno, 2004. "Regole pensionistiche e prolungamento dell'attività: analisi del TIR e effetti del cumulo lavoro-pensione," Working Papers CERM 07-2004, Competitività, Regole, Mercati (CERM).
    12. Sime Smolic & Ivan Cipin & Petra Medimurec, 2020. "How is health associated with employment during later working life in Croatia?," Public Sector Economics, Institute of Public Finance, vol. 44(1), pages 99-116.
    13. Purvi Sevak, 2002. "Wealth Shocks and Retirement Timing: Evidence from the Nineties," Working Papers wp027, University of Michigan, Michigan Retirement Research Center.
    14. Rudolph G. Penner & Richard W. Johnson, 2006. "Health Care Costs, Taxes, and the Retirement Decision: Conceptual Issues and Illustrative Simulation," Working Papers, Center for Retirement Research at Boston College wp2006-20, Center for Retirement Research, revised Nov 2006.
    15. Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, May.
    16. Salomeh Keyhani & Marzieh Vali & Beth Cohen & Alexandra Woodbridge & Melanie Arenson & Elnaz Eilkhani & Christina Aivadyan & Deborah Hasin, 2018. "A search algorithm for identifying likely users and non-users of marijuana from the free text of the electronic medical record," PLOS ONE, Public Library of Science, vol. 13(3), pages 1-8, March.
    17. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2010. "What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 161-182, Winter.
    18. Jing You & Miguel Niño-Zarazúa, 2017. "Smoothing or strengthening the ‘Great Gatsby Curve’? The intergenerational impact of China’s New Rural Pension Scheme," WIDER Working Paper Series 199, World Institute for Development Economic Research (UNU-WIDER).
    19. Jing You & Miguel Niño-Zarazúa, 2017. "Smoothing or strengthening the 'Great Gatsby curve'?: The intergenerational impact of China's New Rural Pension Scheme," WIDER Working Paper Series wp-2017-199, World Institute for Development Economic Research (UNU-WIDER).
    20. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers 188, Netherlands Central Bank, Research Department.
    21. Leora Friedberg & Wei Sun & Anthony Webb, 2008. "What Effect Do Time Constraints Have on the Age of Retirement?," Working Papers, Center for Retirement Research at Boston College wp2008-17, Center for Retirement Research, revised Dec 2008.

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    More about this item

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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