Saving and Retirement Decisions with Pension Risk

Abstract

We analyze the impact of increased pension uncertainties on saving and retirement decisions, both in isolated and in joint decision problems. In the absence of other risks, saving is increased and retirement is delayed when social security pensions get more risky. If saving and retirement decisions are risky themselves, risk-vulnerable individuals will save less upon a higher pension risk; the effect on retirement is ambiguous. If saving and retirement decisions are made jointly, higher pension risks may cause a decline in precautionary saving or an earlier withdrawal from the labor force, but never both at the sametime.