Estimating the Health State at Retirement: A Stochastic Modeling Approach

Abstract

Having established a quantitative methodology of estimating the health state function of a population, we can calculate the gradual loss of health due to aging. According to the theory developed the health state is at level one at birth and gradually declines to zero at death. Note that the health state of an individual as a stochastic process (an unpredictable process during time) cannot be estimated quantitatively. Fortunately, the theory of the stochastic processes provided a quite effective tool to estimate the mean value of the health state of numerous individuals, a population. The form of the health state function estimated for several countries is a declining curve with a negative slope by means of an accelerating decline until the end of life. This was the expected health state development due to aging. The development of the health state function provides quantitative tools for estimation of the health state of the human capital of a population and thus providing a supporting tool for the estimation of the average exit age from the labour force and estimating the optimal retirement age. Applications are presented.