Stated Preference Analysis of Full and Partial Retirement in the United States

Abstract

The share of the older workers in the labor force has increased due to population aging and pension reforms in many countries. However, rules of the public and private pension schemes and restrictions from the employers still require large populations of older workers with possibly heteregeneous work preferences to retire fully at a given age. We study the preferences of older people for a rich set of retirement trajectories charactersized by early or delayed full retirement as well as partial retirement at various ages in the Netherlands and the United States. Two in five prefer partial retirement over early or delayed abrupt full retirement. This suggests that partial retirement can substantially increase the utility derived from work in old age. Furthermore, we study the effects of the pension incentives and increasing retirement age on the preferences to delay retirement fully or partially as means of reducing public expenditure. Individuals want to use partial retirement to extend their work lives if deferring pension rights are made actuarially attractive or if pension accruals are made less generous. On the other hand, as the retirement age increases, individuals want to retire early or work part-time instead of full-time. The comparison of the results between the Netherlands and the United States shows that while people in the Netherlands are responsive to a substitution effect of higher pensions, people in the United States are responsive to an income effect of higher pensions.