Retirement Choices Research Articles

Retirement satisfaction as a quantified outcome of superior financial literacy: An empirical investigation

The purpose of the study is to create a viable and customised retirement planning system with financial literacy as the driver to achieve retirement adequacy and retirement satisfaction, taking into account the increasing financial needs of retirees. Perception regarding retirement choices necessitates sufficient self-efficacy to implement retirement portfolio decisions. Despite transformation in the way retirement is looked at, planning for retirement has taken a backward stride as individuals concentrate on their present needs rather than a holistic approach to life. The study implemented an online self-administered questionnaire for 770 participants using convenience sampling from India’s two major IT hubs, Bangalore and Chennai. The data samples were analysed using Partial Least Squares Structural Equation Model (PLS-SEM). The study evidenced a strong association between superior financial literacy and retirement planning and identified five essential financial behaviours, such as savings attitude, borrowing pattern, investment decision, insurance allocation, and spending behaviour, that strongly influence individual retirement planning. These behaviours lay the foundation for retirement readiness, lowered debt anxiety, and greater risk-bearing capacity. The results further reveal that individual’s satisfaction levels are significantly influenced by retirement adequacy. Therefore, it is imperative to formulate a well-structured retirement plan to attain retirement adequacy and satisfaction.

The Science of Flexible Retirement Choices: Switching Retirement Savings into an Annuity

The Science of Flexible Retirement Choices: Switching Retirement Savings into an Annuity

A Mixed-Methods Examination of Lost Occupational Choice in Retirement.

Lost work opportunity and forced retirement demonstrate negative health impacts related to occupational deprivation. Measuring occupational loss during the retirement transition can be problematic. The objective of the study is to clarify measurement of involuntary retirement in its relationship to occupational loss and deprivation. Using an explanatory sequential mixed-methods design, survey data on unemployment, forced retirement, and earlier-than-planned retirement from 195 screened retirees yielded 102 reporting at least one lost work opportunity event, with 18 interviewed about occupational loss within the analytic timeframe. Planned retirement age was similar for full-employment and lost work opportunity groups. Actual retirement age was earlier in the lost work opportunity sample (age 57.5 compared with 61.2). Interviews identified a 22% discrepancy between forced retirement reported in survey versus interview data. Themes emerging from the interviews indicated financial and identity challenges from lost work opportunity, a dialectical trade-off between lost opportunity and daily freedom, and overall resilience.

"Mi Familia Quiere Que Regrese": Retired Latiné Immigrants' Families' Expectations to Return to Their Country of Origin.

We conducted a quantitative, interdisciplinary study that investigated how financial concerns and varying family connections influence the retirement choices of Latiné immigrants in terms of returning to their country of origin. We hypothesized that being worried about one's finances for retirement, and having strong transnational ties, would lead to familial expectations to return to one's country of origin. Through data collected from a survey through Qualtrics, we found that higher levels of financial worry significantly affected greater familial expectations to return to their country of origin. The transnational ties that influenced the families' expectations to return to their country of origin was having children, friends, and family not residing in the U.S. Following our findings, we discuss potential future directions and implications relating to transnational ties, remittances, and older Latiné immigrants.

How Social Security Reform Affects Retirement and Pension Claiming

A reform increasing the full retirement age (FRA) by one year leads to larger than expected delays in pension claiming and retirement, while making late claiming more lucrative leads to a smaller than expected delay in pension claiming. Survey evidence shows people view the FRA as the “normal” retirement age and prefer to couple pension claiming and retirement decisions together, even though these two decisions are not coupled through social security provisions. Two mechanisms are at work: reference dependence with loss aversion in pension claiming, and spillovers from pension claiming on retirement choices. The FRA increase leads to large government savings. (JEL H55, J26)

Early Retirement Option among Teachers at the Teachers’ Training Institute (IPG)

The phenomenon of early retirement among civil servants also affects the education sector. In addition, lecturers at the Teacher Education Institutes (IPG) are also involved in the issue of early retirement from the public service. This study was conducted to examine the factors contributing to the choice of early retirement among lecturers at IPG Kampus Ilmu Khas. A total of 21 lecturers responded to the distributed instrument. The findings of the study indicate that the highest factor contributing to the choice of early retirement among IPG lecturers is the basic factor aspect, which recorded a mean of 4.16 (sd=.99). The study also revealed two other contributing factors for lecturers opting for early retirement, namely having too many additional responsibilities and tasks (n=18) and the lack of priority given to lecturer welfare (n=12). Furthermore, the study findings suggest that reducing the rate of early retirement among IPG lecturers involve management and service aspects, such as implementing a more balanced distribution of tasks and creating a conducive working environment (n=19). The researcher recommends addressing the issue of early retirement by paying attention to and taking immediate action to cultivate a sense of joy in work among educators.

Retirement Choices in Italy: What an Option Value Model Tells Us

Using Italian data this study estimates the option value model in order to quantify the effect of financial incentives on retirement choices. As far as we know, this is the first empirical study which estimates the conditional multiple-years (CMY) model put forward by Stock and Wise (1990). This implies that we have accounted for dynamic self-selection bias. For the subsample of females the CMY model yields plausible estimates of the preference parameters such as the marginal utility of leisure. This last parameter is typically underestimated if one does not take into account the self-selection problem. From our results it becomes clear that dynamic self-selection results in a considerable downward-bias in the estimate of the marginal utility of leisure. We also performed a simulation study to gauge the effects of a dramatic pension reform. It turns out that the underestimation of the marginal utility of leisure translates into a sizable overprediction of the impact of the reform. For males we also obtain plausible estimates. The results for males should be interpreted with caution because we are not able to fully correct for dynamic self-selection bias.

The Science of Flexible Retirement Choices: Switching Retirement Savings into an Annuity

The Science of Flexible Retirement Choices: Switching Retirement Savings into an Annuity

Target Date Funds, Drawdown Risk, and Central Bank Intervention: Evidence during the COVID-19 Pandemic

Target Date Funds (TDFs) have become the default investment choice in retirement accounts for most households. Later-dated TDFs (e.g., further away from the present day) allocate a more significant percentage of each dollar invested into equities relative to fixed income. As the TDF moves closer to the designated retirement date, the TDF embarks on its’ glide path. We study the impact of the COVID-19 Pandemic and Federal Reserve intervention on the max drawdowns experienced by TDFs during 2020. Later-dated funds experienced more significant drawdowns relative to near-dated funds. Moving out one target date fund increased the drawdown by approximately 1.90%. Approximately 80% of TDFs experienced their max drawdown on 23 March 2020. The max drawdowns of the TDFs are then studied in the following three sub-periods: (1) before the first Federal Reserve Intervention (2 March 2020), (2) after the first intervention and before the second intervention (16 March 2020), and (3) the period after the second intervention. TDFs experienced the greatest drawdowns after the first intervention by the Federal Reserve (approximately 19%) relative to the other two periods (approximately 7%). Fees associated with the TDFs tend not to influence the drawdowns except for the near-dated funds, where the low-fee funds performed better. Finally, near-dated funds recovered from their max drawdowns around September 2020, whereas later-dated funds did not fully recover until December 2020.

Voluntary early retirement and mortality in patients with and without chronic diseases: a nationwide Danish Registry study

ObjectiveThis study explores how the choice of voluntary early retirement (VER) affects mortality in a population where VER is available 5 years before regular retirement age. Study designThis retrospective cohort study uses a registry-based follow-up design with access to Nationwide Danish Registry Data. MethodsThe study includes all Danish individuals who between 2000 and 2015 were part of an unemployment insurance fund and working at the time of their 60th (P60) or 62nd (P62) birthday. Those alive 1 year from their 60th or 62nd birthday were included in the mortality analysis. Individuals were registered as VER recipients if they chose the benefit within 1 year from P60 or P62. Three-year mortality likelihood following the first year from inclusion was explored for both cohorts separately. Multiple subgroups were explored in the mortality analysis, including individuals with chronic obstructive pulmonary disease (COPD), heart failure, and diabetes. ResultsP60 included 627,278 individuals, and VER was chosen by 22.5%. P62 included 379,196 individuals, and VER was chosen by 33.4%. The likelihood of VER in the P60 was lower in healthy individuals (odds ratio [OR] 0.87, confidence interval [CI] 0.85–0.88) and higher in COPD (OR 1.15, CI 1.07–1.22) and heart failure patients (OR 1.15, CI 1.05–1.25). Three-year mortality was significantly higher in those choosing VER in P60 (OR 1.28, CI 1.22–1.34), which was also found for all health subgroups (healthy, OR 1.18, CI 1.07–1.30; COPD, OR 1.55, CI 1.16–2.07; heart failure, OR 1.42, CI 1.02–1.98; diabetes, OR 1.36, CI 1.12–1.65). The increased mortality risk was not found in the P62 cohort. ConclusionThe choice of VER is more likely in patients with COPD and heart failure. VER in the P60 cohort is associated with an increased mortality likelihood, which was not found in the P62 cohort, which may be explained by health selection bias.

Physician assistant/associate retirement intent: seeking the exit ramp

BackgroundRetirement patterns for American physician assistants/associates (PAs) are in flux as the first substantial cadre trained in the 1970s makes their retirement choices. The growing and aging of the US population is increasing the demand for healthcare services. At the same time, provider retirement can decrease patient access to care, disrupt continuity of care and lead to poorer health outcomes. Knowing PA intentions to retire and the retirement patterns can be useful to health system employers and workforce policymakers. The purpose of this study was to investigate the retirement patterns of PAs within the United States. We investigated their characteristics, career roles, and intent to depart from clinical practice.MethodsDrawing on the National Commission on Certification of Physician Assistants (NCCPA) 2020 health workforce data (N = 105,699), the associations of demographics (age, gender, US region, and years certified), and practice attributes (specialty and practice setting) of clinically active PAs were assessed with intending to retire in the next five years. Analyses for this national cross-sectional study included descriptive statistics, Chi-square, and Fisher’s Exact test, as appropriate. A p-value of 0.05 or less was considered statistically significant for all analyses where a comparison was made.ResultsOverall, 5.8% of respondents indicated that they intend to retire within five years. We detected significant differences (all p < 0.001) on intentions to retire by age group, gender, US region, years certified, specialty, and practice setting. Respondents 70 years and older compared to those 60–69 were more likely (66.5% vs. 48.9%), males compared to females (8.8% vs. 4.4%), those who have been certified for more than 21 years compared to 11–20 years (25.6% vs. 4.0%), PAs practicing in family medicine compared to dermatology (7.7% vs. 3.4%) and those in the federal government practice setting compared to rural health clinic (13.6% vs. 9.8%) reported they were more likely to retire in the next five years.ConclusionsOur study provides a comprehensive snapshot of PA retirement intentions using a robust national dataset. Among the most important factors associated with intent to retire in this study were older age and duration of PA career. Most PAs are remaining clinically active into their seventh decade—suggesting that they are integrated into medical systems that value them and they, in turn, value their role.

How taxes impact the choice between an annuity and the lump sum at retirement

AbstractWe analyze how taxes affect the choice between a life-long annuity and a one-off lump sum payment, the so-called annuitization decision. Using administrative data from a large Swiss pension fund, we impute taxes for the lump sum and the life-long annuity option. We show that taxes can explain a significant part of the variation in annuity rates. Exploiting kinks in the tax schedule of the one-off lump sum, we further find evidence for tax optimization strategies. Our findings suggest that individuals react strongly to tax incentives when making retirement choices.

Time-inconsistent life-cycle consumption and retirement choice with mortality risk

In this paper, we propose a general model to study life-cycle consumption and retirement choice of individuals with mortality risk and various forms of discounting preference. By solving the Euler-Lagrange equations, we obtain the optimal consumption strategy explicitly and provide an equation to solve for optimal retirement age. Two intuitive budget constraints are established to demonstrate the effects of precautionary saving and bequest motives on the optimal choices. We also explore the effects of interest rate, income and discounting preference on the optimization, where numerical examples are used to illustrate the role of these factors on the consumption behavior and retirement timing.

A Nudge to Quit? The Effect of a Change in Pension Information on Annuitisation, Labour Supply and Retirement Choices Among Older Workers

Abstract We study the effects of two exogenous modifications in the Swedish pension system application form nudging individuals towards a fixed-term payout. Meanwhile, the set of available options and the default option—life annuity—were unchanged during the period under study. We examine the effects on individuals’ payout decisions and the spillover effects on labour supply and other pensions using a difference-in-difference framework and detailed administrative data on actual payout decisions and a wide range of individual-level outcomes. Each modification increased the demand for the nudged payout by around 30 percentage points. The first modification also induced individuals to work less.

The Impact of Age Stereotypes and Age Norms on Employees' Retirement Choices: A Neglected Aspect of Research on Extended Working Lives.

This article examines how older workers employ internalized age norms and perceptions when thinking about extending their working lives or retirement timing. It draws on semi-structured interviews with employees (n = 104) and line managers, human resource managers and occupational health specialists (n = 52) from four organisations in the United Kingdom. Previous research has demonstrated discrimination against older workers but this is a limiting view of the impact that ageism may have in the work setting. Individuals are likely to internalize age norms as older people have lived in social contexts in which negative images of what it means to be “old” are prevalent. These age perceptions are frequently normalized (taken for granted) in organisations and condition how people are managed and crucially how they manage themselves. How older workers and managers think and talk about age is another dynamic feature of decision making about retirement with implications for extending working lives. Amongst our respondents it was widely assumed that older age would come with worse health—what is more generally called the decline narrative - which served both as a motivation for individuals to leave employment to maximize enjoyment of their remaining years in good health as well as a motivation for some other individuals to stay employed in order to prevent health problems that might occur from an inactive retirement. Age norms also told some employees they were now “too old” for their job, to change job, for training and/or promotion and that they should leave that “to the younger ones”—what we call a sense of intergenerational disentitlement. The implications of these processes for the extending working lives agenda are discussed.

Mortality decline, productivity increase, and positive feedback between schooling and retirement choices

AbstractThe twentieth century has seen a phenomenal decline in mortality and an increase in productivity level. These two important events likely affect people's choices of schooling years and retirement age. We first show that in a standard life-cycle model, positive feedback exists between optimal schooling years and retirement age choices. We then evaluate the impact of a mortality or productivity shock on an endogenous variable (schooling years or retirement age) by decomposing it into the direct and indirect effects, where the indirect effect arises from feedback from the other endogenous variable. Finally, we extend the model by including the utility benefit of schooling and show that a negative correlation of schooling years and retirement age is possible. Apart from clarifying the apparently similar concepts of positive co-movement and positive feedback, our results have implications relevant to the economic demography literature.

Social security and endogenous demographic change: child support and retirement policies

AbstractThis paper studies retirement and child support policies in a small, open, overlapping-generations economy with PAYG social security and endogenous retirement and fertility decisions. It demonstrates that neither fertility nor retirement choices necessarily coincide with socially optimal allocation, because agents do not take into account the externalities of fertility and the elderly labor supply in the economy as a whole. It shows that governments can realize the first-best allocation by introducing a child allowance scheme and a subsidy to incentivize the labor supply of older workers. As an alternative to subsidizing the elderly labor supply, we show that the first-best allocation can also be achieved by controlling the retirement age. Finally, the model is simulated in order to study whether the policies devoted to realizing the social optimum in a market economy could be a Pareto improvement.

Social Security and Endogenous Demographic Change: Child Support and Retirement Policies

This paper studies retirement and child support policies in a small, open, overlapping-generations economy with PAYG social security and endogenous retirement and fertility decisions. It demonstrates that neither fertility nor retirement choices necessarily coincide with socially optimal allocation, because agents do not take into account the externalities of fertility and the elderly labor supply in the economy as a whole. It shows that governments can realize the first-best allocation by introducing a child allowance scheme and a subsidy to incentivize the labor supply of older workers. As an alternative to subsidizing the elderly labor supply, we show that the first-best allocation can also be achieved by controlling the retirement age. Finally, the model is simulated in order to study whether the policies devoted to realizing the social optimum in a market economy could be a Pareto improvement.

Money in Motion: Dynamic Portfolio Choice in Retirement

Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.

Household residential location choice in retirement: The role of climate amenities

The paper examines the relationship between climate amenities and locational choices in retirement. Using data from 2017 release of the American Community Survey, I construct a household residential location choice model and value climate amenities from the trade-offs among housing cost, climate amenities, and other locational attributes in a metropolitan statistical area (MSA). On average, a retired household is willing to pay $1209 for a 1 °C drop in average summer temperature, $1114 for a 1 °C increase in average winter temperature, and $486 for a 1 °C decrease in temperature variability. The values of climate amenities vary with household demographic characteristics, and older households with a higher retirement income and disability have a higher marginal willingness to pay for a favorable climate. Moreover, among the retired population, there exists a positive preference-based sorting across MSAs, where those favoring the preferred temperatures more than the average live in places with a more friendly climate. Using the estimated preference parameters, I compute the values of projected climate amenities and find that retired households would be willing to pay nearly 3.3% of their annual income to avoid a standard future projected climate scenario. Simulation results suggest that over 2% of retired households would relocate in response to this level of climate change, resulting in an overall northbound shift in the retired population.