Retirement Expectations Formation Using the Health and Retirement Study
AbstractThis paper examines how a wide array of factors (household and individual level financial, health and other taste shifter characteristics) influence retirement plans over time and how uncertainty affects the strategies that individuals use to plan their retirement years. Using panel data models we examine the role of health and economic factors on retirement planning using the Health and Retirement Study (HRS). We examine the rationality of plans for retirement controlling for sample selection. After controlling for sample selection, reporting biases, and unobserved heterogeneity we find that plans for retirement do follow the random walk hypothesis and pass tests of weak and strong rationality. These findings allow us to assume rationality and examine retirement plans using first differences. We then examine changes to those factors and the effects of new information on plans and find that new information contributes little to changes in plans. This leads us to conclude that on average people correctly form expectations over uncertain events when planning for retirement. These results have important implications for a wide variety of models in economics that assume rational behavior. Classification-JEL: J26, J22, C23,D84 Keywords: Expectations, Retirement, Panel Data with selection, rationality
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Bibliographic InfoPaper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 02-04.
Date of creation: 18 Jun 2002
Date of revision: 18 Jun 2002
Find related papers by JEL classification:
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-24 (All new papers)
- NEP-HEA-2002-06-24 (Health Economics)
- NEP-LAB-2002-06-24 (Labour Economics)
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