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The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving

  • David E. Bloom
  • David Canning
  • Michael Moore

We develop a life-cycle model of optimal retirement and savings behavior under complete markets where retirement is caused by worsening health in old age. Our model explains the long-run decline in the age of retirement as an income level effect. We show that improvements in health and longevity tend to increase the desired retirement age, though less than proportionately, while, contrary to conventional views, reducing savings rates. The retirement age is not simply proportional to healthy life span because compound interest creates a wealth effect when lifespan increases, leading to more leisure (early retirement) and higher consumption (lower savings).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10919.

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Date of creation: Nov 2004
Date of revision:
Handle: RePEc:nbr:nberwo:10919
Note: AG HC LS
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