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Health, incentives, and retirement choice: A life-cycle analysis from China

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  • Li, Chao
  • Cang, Han

Abstract

China's rapid population aging and ongoing pension reforms have fundamentally reshaped retirement behavior, yet the interaction between health dynamics and retirement incentives remains insufficiently understood. This paper develops a lifecycle model with endogenous retirement and health accumulation under the Basic Old-Age Insurance (BOAI) system calibrated to Chinese data. The model replicates observed retirement patterns and reveals that better health postpones retirement, while higher pension replacement ratios, amplified by a contribution-floor adjustment, encourage earlier labor exit, particularly for low-income workers. Health effects operate primarily through two channels: the income channel, where income decline increases the likelihood of triggering the adjustment mechanism and incentivizes early retirement; and the risk channel, where deteriorating health increases morbidity and mortality uncertainty and accelerates retirement. Counterfactual simulations reveal asymmetry in health effects: Lower personal account rate and individual productivity disproportionately affect unhealthy households, while increasing contribution rate primarily accelerates retirement among healthier workers.

Suggested Citation

  • Li, Chao & Cang, Han, 2026. "Health, incentives, and retirement choice: A life-cycle analysis from China," China Economic Review, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:chieco:v:96:y:2026:i:c:s1043951x26000179
    DOI: 10.1016/j.chieco.2026.102667
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