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The Rationality of Retirement Expectations and the Role of New Information

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  • Hugo Bentez-Silva

    (State Univ of New York-Stony Brook)

  • Debra S. Dwyer

    (State Univ of New York-Stony Brook)

Abstract

This paper tests the rationality of retirement expectations, controlling for sample selection and reporting biases. We find that retirement expectations in the Health and Retirement Study are consistent with the rational expectations hypothesis. We also analyze how new information affects the evolution of retirement expectations and discover that, on average, individuals correctly anticipate most uncertain events when planning their retirement, except for some health shocks, the need for additional private health coverage, and the probability of a job change. Our results support a wide variety of models in economics that assume rational behavior. 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Hugo Bentez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, August.
  • Handle: RePEc:tpr:restat:v:87:y:2005:i:3:p:587-592
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