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The Effect of Wealth and Earned Income on the Decision to Retire: A Dynamic Probit Examination of Retirement

  • Bender, Keith A.

    ()

    (University of Aberdeen)

  • Mavromaras, Kostas G.

    ()

    (NILS, Flinders University)

  • Theodossiou, Ioannis

    ()

    (University of Aberdeen)

  • Wei, Zhang

    ()

    (NILS, Flinders University)

This paper estimates the propensity to retire and the persistence of remaining retired once the decision to retire has been made in the US labour market, using a dynamic panel probit model. The estimated income effect of higher housing wealth is virtually zero and that of financial assets wealth is positive, increasing the retirement probability. The substitution effect of earned income is negative, thus decreasing the retirement probability. The retirement decision is strongly state persistent for up to three years after the initial retirement decision and the state persistence of retirement is reinforced by wealth and earned income.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7927.

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Length: 32 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:iza:izadps:dp7927
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