GAOBO PANG, Watson Wyatt Worldwide
Email: Gaobo.Pang@watsonwyatt.com
MARK J. WARSHAWSKY, Watson Wyatt Worldwide
Email: MARK.WARSHAWSKY@DO.TREAS.GOV
BEN WEITZER, Watson Wyatt Worldwide
Email: Ben.Weitzer@watsonwyatt.com

This paper investigates the influences on retirement behavior among older workers who were surveyed by the Health and Retirement Study (1992-2004). It is found that increases in all categories of wealth (pension, housing equity and other financial wealth) increase the probability of retiring, while good earnings prospects induce continued employment. Retirement plan types have significant impacts: workers covered by defined benefit (DB) plans are more likely to retire, while the defined contribution (DC) plan coverage significantly alters retirement in the opposite direction. Furthermore, the probability and thus timing of retirement for DC plan participants are susceptible to the influence of business cycles through income flow fluctuations that are due to investment performance and interest rate changes. Health insurance (HI), if conditional on employment, strongly defers retirement, while alternative sources of insurance such as retiree HI, spouse's HI, or public HI, encourages labor force exit. The scheduled increases in the full retirement age for Social Security acts to encourage younger cohorts to work longer.

KENNETH J. MCDONNELL, Employee Benefit Research Institute (EBRI)
Email: MCDONNELL@EBRI.ORG

The U.S. retirement income system -- including employment-based retirement plans, Social Security, individual saving, and post-retirement employment -- can be assessed in part by examining the income of the current elderly population (age 65 and older). This paper reviews the latest available data on the older population's income (from the U.S. Census Bureau's March 2007 Current Population Survey) and how it has changed over time, as well as how the elderly's reliance on these sources varies across demographic characteristics.

The PDF for the above title, published in the December 2007 issue of EBRI Notes, also contains the fulltext of another December 2007 EBRI Notes article abstracted on SSRN: IRA Assets and Contributions, 2006.

TODD M. SINAI, University of Pennsylvania - The Wharton School, National Bureau of Economic Research (NBER)
Email: sinai@wharton.upenn.edu
NICHOLAS S. SOULELES, University of Pennsylvania - Finance Department, National Bureau of Economic Research (NBER)
Email: Souleles@wharton.upenn.edu

This paper documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. The net worth of older households significantly increased during the housing boom of recent years. However, net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, the younger elderly offset rising house prices by increasing their housing debt, and used some of the proceeds to invest in other assets. We also consider how much of their housing equity older households can actually tap, using reverse mortgages. This fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. These results imply that 'consumable' net worth is smaller than standard calculations of net worth.

JOHN BOUND, University of Michigan, National Bureau of Economic Research (NBER)
Email: jbound@umich.edu
TODD R. STINEBRICKNER, University of Western Ontario - Department of Economics
Email: TRISTENB@JULIAN.UWO.CA
TIMOTHY WAIDMANN, Urban Institute
Email: twaidman@ui.urban.org

In this paper, we specify a dynamic programming model that addresses the interplay among health, financial resources, and the labor market behavior of men in the later part of their working lives. Unlike previous work which has typically used self reported health or disability status as a proxy for health status, we model health as a latent variable, using self reported disability status as an indicator of this latent construct. Our model is explicitly designed to account for the possibility that the reporting of disability may be endogenous to the labor market behavior we are studying. The model is estimated using data from the Health and Retirement Study. We compare results based on our model to results based on models that treat health in the typical way, and find large differences in the estimated effect of health on behavior. While estimates based on our model suggest that health has a large impact on behavior, the estimates suggest a substantially smaller role for health than we find when using standard techniques. We use our model to simulate the impact on behavior of raising the normal retirement age, eliminating early retirement altogether and eliminating the Social Security Disability Insurance program.

DAVID E. BLOOM, Harvard University - Harvard School of Public Health, National Bureau of Economic Research (NBER)
Email: dbloom@hsph.harvard.edu
DAVID CANNING, Harvard University - Harvard School of Public Health
Email: dcanning@hsph.harvard.edu
MICHAEL MOORE, Queen's University (Belfast) - School of Management and Economics
Email: m.moore@qub.ac.uk

We construct a life-cycle model in which retirement occurs at the end of life as a result of declining health. We show that improvements in life expectancy, coupled with a delay in the onset of disability, increases both the optimal consumption level and the proportion of life spent in leisure. The retirement age increases proportionally less than the increase in life expectancy.