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Retirement Incentives and Expectations

  • Sewin Chan
  • Ann Huff Stevens

This paper investigates the responsiveness of individuals' retirement expectations to forward-looking measures of pension wealth accumulations. While most of the existing literature on retirement has used cross-sectional variation to identify the effects of pension and Social Security wealth on retirement behavior, we estimate fixed-effects regressions to control for unobserved heterogeneity that might be correlated with retirement plans and wealth. As expected, we find significant effects of future pension wealth accumulations on retirement expectations, but the magnitude of these effects differs substantially between OLS and fixed-effects estimation. Coefficients from fixed-effects estimation are at most half the magnitude of similar OLS regressions. Our results point to potentially large biases from the failure to control for unobserved heterogeneity in empirical models of retirement-related outcomes.

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File URL: http://www.nber.org/papers/w8082.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8082.

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Date of creation: Jan 2001
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Publication status: published as Chan, Sewin and Ann Huff Stevens. "Do Changes In Pension Incentives Affect Retirement? A Longitudinal Study Of Subjective Retirement Expectations," Journal of Public Economics, 2004, v88(7-8,Jul), 1307-1333.
Handle: RePEc:nbr:nberwo:8082
Note: LS
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  1. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
  2. Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
  3. James F. Moore & Olivia S. Mitchell, 1997. "Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study," NBER Working Papers 6240, National Bureau of Economic Research, Inc.
  4. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1990. "Three Models of Retirement: Computational Complexity Versus Predictive Validity," NBER Working Papers 3558, National Bureau of Economic Research, Inc.
  5. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  6. Ruhm, Christopher J, 1990. "Bridge Jobs and Partial Retirement," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 482-501, October.
  7. John Rust, 1987. "A Dynamic Programming Model of Retirement Behavior," NBER Working Papers 2470, National Bureau of Economic Research, Inc.
  8. Alan L. Gustman & Thomas L. Steinmeier, 1999. "What People Don't Know About Their Pensions and Social Security: An Analysis Using Linked Data from the Health and Retirement Study," NBER Working Papers 7368, National Bureau of Economic Research, Inc.
  9. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  10. Alan L. Gustman & Thomas L. Steinmeier, 1998. "Effects of Pensions on Saving: Analysis with Data from the Health and Retirement Study," NBER Working Papers 6681, National Bureau of Economic Research, Inc.
  11. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  12. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-84, May.
  13. Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
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