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

Author

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  • Bender, Keith A.

    () (University of Aberdeen)

  • Mavromaras, Kostas G.

    () (NILS, Flinders University)

  • Theodossiou, Ioannis

    () (University of Aberdeen)

  • Wei, Zhang

    () (NILS, Flinders University)

Abstract

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.

Suggested Citation

  • Bender, Keith A. & Mavromaras, Kostas G. & Theodossiou, Ioannis & Wei, Zhang, 2014. "The Effect of Wealth and Earned Income on the Decision to Retire: A Dynamic Probit Examination of Retirement," IZA Discussion Papers 7927, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp7927
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    References listed on IDEAS

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    Cited by:

    1. Pierre Lefebvre & Philip Merrigan & Pierre-Carl Michaud, 2011. "The Recent Evolution of Retirement Patterns in Canada," Social and Economic Dimensions of an Aging Population Research Papers 287, McMaster University.

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    More about this item

    Keywords

    retirement decision; retirement dynamics; dynamic panel estimation; income and wealth;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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