Mortality transition and differential incentives for early retirement

Abstract

Existing studies investigating the effect of mortality decline on retirement age usually specify the human mortality pattern in a parametric way and consider the derivative of optimal retirement age with respect to a change in the survival parameter. However, a survival parameter change affects the mortality rates at different ages simultaneously. Motivated by the stylized fact that mortality decline affects primarily younger people in the early phase of a mortality transition but mainly older people in the later phase, we study the more fundamental question of how a mortality change at an arbitrary age affects optimal retirement age. By using the Volterra derivative for a functional, we show that a mortality decline at an older age unambiguously leads to a later retirement age, but a mortality decline at a younger age may lead to earlier retirement because of the substantial increase in the individual's expected lifetime human wealth.