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Retirement Date Effects on Saving Bahavior: The Case of Non-Separable Preferences

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  • Aylit Tina Romm

Abstract

In this paper we demonstrate that the magnitude of the reaction of saving behavior to a change in the anticipated retirement date is largely determined by the degree to which utility is additively separable in consumption and leisure. We show that the relative decrease in saving in response to a later anticipated retirement date is larger when preferences are non-separable in consumption and leisure, and the cross-derivative of the utility function is negative, than when preferences are separable. In particular, based on our simulations, the short term decrease in aggregate pre-retirement saving in response to a later anticipated retirement date may be up to 61.5% in the non-separable case as against 31% in the separable case. In the long-term , the decrease in pre-retirement saving would be as much as 28.5% in the non-separable case, as against 16.5% in the separable case.

Suggested Citation

  • Aylit Tina Romm, 2013. "Retirement Date Effects on Saving Bahavior: The Case of Non-Separable Preferences," Working Papers 323, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:323
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    File URL: http://www.econrsa.org/node/649
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    Keywords

    Non-separable preferences; retirement date; saving;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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