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Illiquid Wealth and the Timing of Retirement

Author

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  • Job Boerma

    (University of Minnesota)

  • Jonathan Heathcote

    (Federal Reserve Bank of Minneapolis)

Abstract

Retirement saving is relatively illiquid. We explore whether this can account for the clustering of retirement decisions around the normal retirement age. We construct a series of retirement models featuring realistic financial market frictions and pension systems. We then estimate these models using Dutch micro data on income, wealth, and retirement choices. We use the estimated model to simulate various pension reforms and examine their impact on labor force participation. The model can account well for the observed increase in the average age of retirement in the Netherlands between 2000 and 2016. A general message from the analysis is that households’ willingness to retire early is very sensitive to the liquidity of their retirement savings.

Suggested Citation

  • Job Boerma & Jonathan Heathcote, 2019. "Illiquid Wealth and the Timing of Retirement," 2019 Meeting Papers 1485, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1485
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    Cited by:

    1. Tobin Hanspal & Annika Weber & Johannes Wohlfart, 2020. "Exposure to the COVID-19 Stock Market Crash and its Effect on Household Expectations," CEBI working paper series 20-13, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    2. Hanspal, Tobin & Weber, Annika & Wohlfart, Johannes, 2020. "Exposure to the COVID-19 stock market crash and its effect on household expectations," SAFE Working Paper Series 279, Leibniz Institute for Financial Research SAFE.

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