JOHN BOUND, University of Michigan, National Bureau of Economic Research (NBER)
Email: jbound@umich.edu
TIMOTHY WAIDMANN, Urban Institute
Email: twaidman@ui.urban.org

We estimate the magnitude of any direct effect of retirement on health. Since retirement is endogenous to heath, it is not possible to estimate this effect by comparing the health of individuals before and after they retire. As an alternative we use institutional features of the pension system in the United Kingdom that are exogenous to the individual to isolate exogenous variation in retirement behavior. Data used will include both vital statistics and survey data that include both "objective" physical measurements and respondent self-reports. We find no evidence of negative health effects of retirement and some evidence that there may be a positive effect, at least for men.

JOHN LAITNER, University of Michigan at Ann Arbor - Department of Economics
Email: jlaitner@umich.edu
DAN SILVERMAN, University of Michigan at Ann Arbor - Economics Department, National Bureau of Economic Research (NBER)
Email: dansilv@umich.edu

After dropping for a century, the average retirement age for U.S. males seems to have leveled off in recent decades. An important question is whether as future improvements in technology cause wages to rise, desired retirement ages will resume their downward trend, or not. This paper attempts to use HRS panel data to test how relatively high (or low) earnings affect male retirement ages. Our goal is to use cross-sectional earning differences to help anticipate likely time-series developments in coming decades. Our preliminary regression results show that higher earnings do lead to somewhat earlier retirement. Unless additional analysis changes the parameter estimates, the implication is that the downward trend in male retirement ages will ultimately return.

NICOLE MAESTAS, RAND Corporation
Email: maestas@rand.org
XIAOYAN LI, RAND Corporation
Email: xiayoan_li@rand.org

We introduce the process of psychological burnout and recovery as an explanation for the phenomenon known as unretirement. We illustrate theoretically how predictable time variation in burnout could generate retirement and subsequent re-entry in a standard retirement model. We apply this model to the longitudinal Health and Retirement Study, presenting a novel measure of burnout, the Burnout EX3 Index. The index is correlated with different types of work stressors, and its time profile discriminates among different types of retirees. For example, prior to retirement, burnout rises steeply for future unretirees then falls rapidly after retirement; whereas burnout among future partial retirees is low and changes little over time. Using a series of econometric models derived from our theoretical model, we show that as burnout rises, retirement becomes more probable, and as burnout recedes following retirement, re-entry becomes more probable. While access to public and private pension benefits increases the likelihood of retirement for all retirees, pension accruals are least important for those who will later unretire, suggesting that unretirees are more willing to trade future gains in pension wealth for leisure than other retirees. Indeed, for this group, the effect of burnout dominates that of the net return to work.

PETER J. BRADY, Investment Company Institute
Email: pbrady@ici.org

To maintain their standard of living in retirement, it is often assumed that individuals need to save enough to replace 75 percent to 80 percent of their final pay. This paper develops a replacement rate measure that better corresponds to a replacement of consumption by properly accounting for savings, taxes, and owner-occupied housing. Savings and investment behavior judged by standard analysis to be inadequate is shown to result in high real consumption in retirement relative to pre-retirement consumption. For example, the simulated savings and investment behavior of single individuals in this study results in retirement income of about 60 percent of final earnings, well below the typical adequacy threshold of 75 to 80 percent. However, this corresponds to replacing about 90 percent of pre-retirement consumption for renters and over 100 percent for homeowners who have paid off their mortgage.

ANNAMARIA LUSARDI, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: annamaria.lusardi@dartmouth.edu
OLIVIA S. MITCHELL, University of Pennsylvania - Insurance & Risk Management Department, National Bureau of Economic Research (NBER)
Email: mitchelo@wharton.upenn.edu

The present paper introduces a new dataset, the Rand American Life Panel (ALP), which offers several appealing features for an analysis of financial literacy and retirement planning. It allows us to evaluate financial knowledge during workers' prime earning years when they are making key financial decisions, and it offers detailed financial literacy and retirement planning questions, permitting a finer assessment of respondents' financial literacy than heretofore feasible. We can also compare respondents' self-assessed financial knowledge levels with objective measures of financial literacy, and most valuably, we can investigate prior financial training which permits us to identify key causal links. By every measure, and in every sample we examine, financial literacy proves to be a key determinant of retirement planning. We also find that respondent literacy is higher when they were exposed to economics in school and to company-based financial education programs.

ARIE KAPTEYN, RAND Corporation, Institute for the Study of Labor (IZA)
Email: kapteyn@rand.org
JAMES P. SMITH, RAND Corporation, Institute for the Study of Labor (IZA)
Email: james_smith@rand.org
ARTHUR VAN SOEST, RAND Corporation, Institute for the Study of Labor (IZA), Tilburg University
Email: VanSoest@rand.org
JAMES BANKS, Institute for Fiscal Studies & University College
Email: J.W.BANKS@UCL.AC.UK

Many western industrialized countries face strong budgetary pressures due to the aging of the baby boom generations and the general trends toward earlier ages of retirement. The authors use the American PSID and the European Community Household Panel (ECHP) to explain differences in prevalence and dynamics of self-reported work disability and labor force status. To that end they specify a two-equation dynamic panel data model describing the dynamics of labor force status and self-reported work disability. When they apply the U.S. parameters to the equations for the thirteen European countries we consider, the result is generally that work disability is lower and employment is higher. Furthermore, measures of employment protection across the different countries suggest that increased employment protection reduces reentry into the labor force and hence is a major factor explaining employment differences in the pre-retirement years.

ALAN L. GUSTMAN, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: Alan.L.Gustman@dartmouth.edu
THOMAS L. STEINMEIER, Texas Tech University - Department of Economics and Geography
Email: thomas.steinmeier@ttu.edu

This paper examines retirement and related behavioral responses to policies that on average are actuarially neutral. Many conventional models predict that actuarially neutral policies will not affect retirement behavior. In contrast, our model allows those with high time preference rates to find that the promise of an actuarially fair increase in future rewards does not balance the loss from foregone current benefits. Using data from the Health and Retirement Study, we find that from age 62 through full retirement age, the earnings test reduces full-time work by married men by about four percentage points, or by about ten percent of married men at full-time work. Abolishing the requirements on many jobs that an individual work full-time or not at all, what we term a minimum hours constraint on employment, would induce more than twice as many people to enter partial retirement as would leave full-time work, so that total full-time equivalent (FTE) employment would increase, although by a modest amount. If all benefits from personal accounts could be taken as a lump sum, the fraction not retired at age 62 would fall by about 5 percentage points compared to a system where there is mandatory annuitization of benefits.

KERWIN KOFI CHARLES, University of Chicago - Irving B. Harris Graduate School of Public Policy Studies
Email: kcharles@uchicago.edu
PHILIP DECICCA, McMaster University - Department of Economics
Email: decicca@mcmaster.ca

Data from the Health and Retirement Study indicate that hours constraints are a common feature of jobs held by workers nearing retirement. We present a simple model that predicts that workers who are not free to lower their usual hours of work should be more likely than their unconstrained counterparts to retire by some future date. Our estimates, which are robust to various specifications, support this prediction. The amount by which being hours constrained is estimated to raise retirement probabilities is nearly as large as the effect of being in relatively poor health, suggesting an economically significant effect.