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Retirement Choice Simulation in Household Settings with Heterogeneous Pension Plans

  • Li, Jinjing

    ()

    (Maastricht University)

  • O'Donoghue, Cathal

    ()

    (Teagasc Rural Economy Research Centre)

This paper estimates a structured life cycle model of family retirement decision using a unique historical dataset back simulated from Living in Ireland survey. Our model takes the advantages of the dataset and models retirement decisions in terms of monetary and leisure incentives, which reflect the complex welfare system in Ireland. The household extension version of the model adapts a collective modelling approach, where the intra-household bargaining is considered. We further incorporate complimentary leisure, which allows us to analyse the interactions of spouses' retirement timing. This methodology enables us to capture the dynamics of retirement and tax-benefit policies and can be used to simulate the effect of policy reform on household retirement behaviours. The paper, in addition, applies the model to assess individual budgetary implications and the labour market impact of rising the minimum retirement age. Our simulation shows that increasing the minimum age for state pension entitlement to 70 would only delay the retirement by less than 2 years according to the individual based model. When we consider the intra-household bargaining and the higher preference of leisure found in the dual career households, the effect of postponing retirement further declines. The result suggests barely postponing the minimum retirement age for state pension without redefining the occupation and private pension rules will only have limited impact for household retirement behaviour in Ireland.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5866.

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Length: 26 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5866
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  3. Euwals, Rob & van Vuuren, Daniel & Wolthoff, Ronald, 2006. "Early Retirement Behaviour in the Netherlands - Evidence from a Policy Reform," CEPR Discussion Papers 5596, C.E.P.R. Discussion Papers.
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  8. James H. Stock & David A. Wise, 1990. "The Pension Inducement to Retire: An Option Value Analysis," NBER Chapters, in: Issues in the Economics of Aging, pages 205-230 National Bureau of Economic Research, Inc.
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  14. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics 3411, University of Munich, Department of Economics.
  15. Apps, P.F. & Rees, R., 1996. "Collective Labor Supply and Household Production," Papers 301, Australian National University - Department of Economics.
  16. Michael D. Hurd, 1988. "The Joint Retirement Decision of Husbands and Wives," NBER Working Papers 2803, National Bureau of Economic Research, Inc.
  17. Michaud, Pierre-Carl & Vermeulen, Frederic, 2011. "A collective labor supply model with complementarities in leisure: Identification and estimation by means of panel data," Labour Economics, Elsevier, vol. 18(2), pages 159-167, April.
  18. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity versus Predictive Validity," NBER Chapters, in: Topics in the Economics of Aging, pages 21-60 National Bureau of Economic Research, Inc.
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  28. repec:hoo:wpaper:e-88-28 is not listed on IDEAS
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