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Back to Work: Expectations and Realizations of Work after Retirement

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  • Nicole Maestas
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    Abstract

    This paper analyzes a puzzling aspect of retirement behavior known as Òunretirement,Ó in which retirees appear to reverse their retirement decisions and return to work. Using panel data from the Health and Retirement Study, the author shows that nearly 50 percent of retirees follow a nontraditional retirement path that involves partial retirement or unretirement, and that 26 percent of retirees later unretire. She explores two possible explanations: 1) unretirement transitions are unexpected, resulting from failures in planning or financial shocks; and 2) unretirement transitions are anticipated prior to retirement, reflecting a more complex retirement process. She presents a theoretical model that illustrates how both unplanned and planned unretirement might arise in a life-cycle framework-the former via uncertainty in asset returns and medical expenses, and the latter through a phenomenon she calls Òburnout and recovery,Ó in which individuals systematically burn out on their career jobs, retire, then return to the labor force after a period of recovery. Using data on expectations and realizations of work during retirement, she shows that unretirement was anticipated for the vast majority (82 percent) of those returning to work, and is not a result of financial shocks, poor planning or low wealth accumulation. For the small minority who unexpectedly returned to work, the evidence points to preference shocks-that is, discovering retirement leisure less satisfying than expected. If anything, expectations err on the side of excessive pessimism about retirement rather than unwarranted optimism; this finding complements a growing literature on consumption behavior at retirement which has suggested that realized retirement turns out better than expected for most people.

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    File URL: http://www.rand.org/content/dam/rand/pubs/working_papers/2007/RAND_WR196-2.pdf
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    Bibliographic Info

    Paper provided by RAND Corporation Publications Department in its series Working Papers with number 196.2.

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    Length: 44 pages
    Date of creation: Apr 2007
    Date of revision:
    Handle: RePEc:ran:wpaper:196.2

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    Keywords: retirement; aging; expectations; employment;

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    References

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    1. John Ameriks & Andrew Caplin & John Leahy, 2007. "Retirement Consumption: Insights from a Survey," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 265-274, May.
    2. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
    3. Hugo Benitez-Silva, 2000. "Micro Determinants of Labor Force Status Among Older Americans," Department of Economics Working Papers 00-07, Stony Brook University, Department of Economics.
    4. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
    5. Sarah Smith, 2004. "Can the retirement consumption puzzle be solved?," IFS Working Papers W04/07, Institute for Fiscal Studies.
    6. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
    7. Blau, David M, 1994. "Labor Force Dynamics of Older Men," Econometrica, Econometric Society, vol. 62(1), pages 117-56, January.
    8. Berkovec, James & Stern, Steven, 1991. "Job Exit Behavior of Older Men," Econometrica, Econometric Society, vol. 59(1), pages 189-210, January.
    9. Steven J. Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, May.
    10. 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.
    11. Ruhm, Christopher J, 1990. "Bridge Jobs and Partial Retirement," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 482-501, October.
    12. John P. Rust, 1990. "Behavior of Male Workers at the End of the Life Cycle: An Empirical Analysis of States and Controls," NBER Chapters, in: Issues in the Economics of Aging, pages 317-382 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Nicole Maestas & Xiaoyan Li, 2007. "Burnout and the Retirement Decision," Working Papers wp166, University of Michigan, Michigan Retirement Research Center.
    2. Tunga Kantarci & Arthur Soest, 2008. "Gradual Retirement: Preferences and Limitations," De Economist, Springer, vol. 156(2), pages 113-144, June.

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