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Optimal retirement age, leisure and consumption

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  • Mao, Hong
  • Ostaszewski, Krzysztof M.
  • Wang, Yuling

Abstract

In this paper, we study the determination of optimal retirement age, optimal leisure time, and optimal consumption, and we also analyze their relationships using an optimal control theory. We establish a life cycle model and analyze the factors of consumption, leisure, saving, mortality and retirement behaviors simultaneously with an orthogonal-array experimental design. Our results show that the initial salary level and the growth rate of salary are the most important determining factors of the optimal retirement age. The initial consumption level and the interest rate are also important factors affecting optimal retirement age. The mortality improvement has a minor effect on the optimal retirement age. The effects of the Social Security on the optimal retirement age depend on the Social Security tax and the level of Social Security benefit.

Suggested Citation

  • Mao, Hong & Ostaszewski, Krzysztof M. & Wang, Yuling, 2014. "Optimal retirement age, leisure and consumption," Economic Modelling, Elsevier, vol. 43(C), pages 458-464.
  • Handle: RePEc:eee:ecmode:v:43:y:2014:i:c:p:458-464
    DOI: 10.1016/j.econmod.2014.09.002
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    References listed on IDEAS

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    1. John Laitner & Dan Silverman, 2005. "Estimating Life-Cycle Parameters from Consumption Behavior at Retirement," NBER Working Papers 11163, National Bureau of Economic Research, Inc.
    2. Gary S. Fields & Olivia S. Mitchell, 1984. "Economic Determinants of the Optimal Retirement Age: An Empirical Investigation," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 245-262.
    3. Sebnem Kalemli-Ozcan & David Weil, 2010. "Mortality change, the uncertainty effect, and retirement," Journal of Economic Growth, Springer, vol. 15(1), pages 65-91, March.
    4. Bloom, David E. & Börsch-Supan, Axel & McGee, Patrick & Seike, Atsushi, 1970. "Population Aging: Facts, Challenges, and Responses," MEA discussion paper series 201224, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, vol. 88(11), pages 2259-2281, September.
    6. Farhi, Emmanuel & Panageas, Stavros, 2007. "Saving and investing for early retirement: A theoretical analysis," Journal of Financial Economics, Elsevier, vol. 83(1), pages 87-121, January.
    7. Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 505-529.
    8. 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.
    9. Sickles, Robin C & Taubman, Paul, 1986. "An Analysis of the Health and Retirement Status of the Elderly," Econometrica, Econometric Society, vol. 54(6), pages 1339-1356, November.
    10. Bodie, Zvi & Detemple, Jerome B. & Otruba, Susanne & Walter, Stephan, 2004. "Optimal consumption-portfolio choices and retirement planning," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1115-1148, March.
    11. Costa, Dora L, 1998. "The Evolution of Retirement: Summary of a Research Project," American Economic Review, American Economic Association, vol. 88(2), pages 232-236, May.
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    Citations

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    Cited by:

    1. Aydilek, Asiye, 2016. "The allocation of time and puzzling profiles of the elderly," Economic Modelling, Elsevier, vol. 53(C), pages 515-526.
    2. Даниелян, Владимир, 2016. "Детерминанты Пенсионного Возраста: Обзор Исследований
      [Determinants of Retirement Age: A Review of Research]
      ," MPRA Paper 73865, University Library of Munich, Germany.
    3. Pestieau, Pierre & Racionero, Maria, 2016. "Harsh occupations, life expectancy and social security," Economic Modelling, Elsevier, vol. 58(C), pages 194-202.

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