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Can subjective survival expectations explain retirement behaviour?

Author

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  • Owen O'Donnell
  • Federica Teppa
  • Eddy van Doorslaer

Abstract

Theory predicts a number of mechanisms through which survival expectations influence retirement decisions: a wealth effect of a longer lifespan; an uncertainty effect through the return on savings; a longevity risk effect; and, an adverse selection effect from pooling within pensions. We use data from the first three waves of the English Longitudinal Study of Ageing to test whether the timing of retirement is responsive to subjective survival expectations. Measurement error in reported survival chances is allowed for by instrumenting using parental longevity and smoking behaviour. We find a significant concave relationship between the propensity to retire and survival expectations. Men who are extremely pessimistic about their survival chances are least likely to retire, but after initially rising steeply the propensity to retire falls as survival expectations improve over most of their range. This is consistent with some of the theory. For women, the results are more sensitive to allowing for endogeneity. Surprisingly, the retirement behaviour of the less educated is more sensitive to survival expectations.

Suggested Citation

  • Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers 188, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:188
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    File URL: https://www.dnb.nl/binaries/WP%20188-2008_tcm46-205170.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Beatrice Scheubel & Daniel Schunk & Joachim Winter, 2009. "Don't Raise the Retirement Age! An Experiment on Opposition to Pension Reforms and East-West Differences in Germany," CESifo Working Paper Series 2752, CESifo Group Munich.
    2. Federica Teppa, 2011. "Can the Longevity Risk Alleviate the Annuitization Puzzle? Empirical Evidence from Dutch Data," DNB Working Papers 302, Netherlands Central Bank, Research Department.
    3. Wu, Shang & Stevens, Ralph & Thorp, Susan, 2015. "Cohort and target age effects on subjective survival probabilities: Implications for models of the retirement phase," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 39-56.
    4. Huynh, Kim P. & Jung, Juergen, 2015. "Subjective health expectations," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 693-711.
    5. Federica Teppa & Susan Thorp & Hazel Bateman, 2015. "Family, friends and framing: A cross-country study of subjective survival expectations," DNB Working Papers 491, Netherlands Central Bank, Research Department.
    6. repec:spr:eurpop:v:33:y:2017:i:4:d:10.1007_s10680-017-9411-y is not listed on IDEAS
    7. Federica Teppa, 2011. "Can the longevity risk alleviate The annuitization puzzle? Empirical evidence from Dutch data," Working Papers 223, ECINEQ, Society for the Study of Economic Inequality.

    More about this item

    Keywords

    Longevity; Retirement; Pensions; Expectations; Subjective Survival Probability.;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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