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Personal Accounts and Family Retirement

  • Alan L. Gustman
  • Thomas L. Steinmeier

This paper constructs a model of retirement and saving by two earner couples. The model includes three dimensions of behavior: the joint determination of retirement and saving; heterogeneity in time preference; and the interdependence of retirement decisions of husbands and wives. Estimation is based on panel data from the Health and Retirement Study covering the period 1992 to 2000. When husbands postpone their retirement so they can retire together with their typically younger wives, the spike in retirement at age 62 is smeared to later ages. Thus retirements differ between one and two earner families. We find both an asymmetry in which husbands prefer their wife to be retired before they retire, and a clear distaste of many husbands to retiring when their wives are in poor health, while the wives are willing to stay at home with sickly husbands. We simulate a system of personal Social Security accounts based on a 10.6 percent contribution rate over the lifetime. One version allows individuals to make lump sum withdrawals at retirement instead of annuitizing. This program would increase the retirement rates of husbands at age 62 by about 15 percentage points compared to the current system. Adding a lump sum option, by itself, would increase retirements at 62 by about 6 percentage points.

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File URL: http://www.nber.org/papers/w10305.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10305.

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Date of creation: Feb 2004
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Publication status: published as Alan L. Gustman and Thomas L. Steinmeier. "Projecting Behavioral Responses to the Next Generation of Retirement Policies". Research in Labor Economics, Vol. 28, 2008, pp. 141-196.
Handle: RePEc:nbr:nberwo:10305
Note: AG LS PE
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  1. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers 9183, National Bureau of Economic Research, Inc.
  2. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  3. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
  4. Alan L. Gustman & Thomas L. Steinmeier, 2004. "Social security, pensions and retirement behaviour within the family," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 723-737.
  5. David M, Blau & Donna B, Gilleskie, 2003. "Health Insurance and Retirement of Married Couples," Working Papers 2003-41, Centre de Recherche en Economie et Statistique.
  6. Eric French, 2000. "The effects of health, wealth, and wages on labor supply and retirement behavior," Working Paper Series WP-00-2, Federal Reserve Bank of Chicago.
  7. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
  8. Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
  9. David M. Blau & Donna B. Gilleskie, 2003. "The Role of Retiree Health Insurance in the Employment Behavior of Older Men," NBER Working Papers 10100, National Bureau of Economic Research, Inc.
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