nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒11‒22
eighteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The impact of an increase in the legal retirement age on the effective retirement age. By Bernal, Noelia; Vermeulen, Frederic
  2. Employer-provided pensions, incomes, and hardship in early transitions to retirement By Milligan, Kevin
  3. Impacts of Cyclical Downturns on the Third Pillar of the RIS and Policy Responses By Davies, James B.; Yu, Xiaoyu
  4. Estimating the Number of Guaranteed Income Supplement Recipients Who Have Mistakenly Saved in Registered Retirement Savings Plans and Registered Pension Plans By Veall, Michael R.
  5. The Receipt of Guaranteed Income Supplement (GIS) Status Among Canadian Seniors – Incidence and Dynamics By Finnie, Ross; Gray, David; Zhang, Yan
  6. How family status and social security claiming options shape optimal life cycle portfolios By Hubener, Andreas; Maurer, Raimond; Mitchell, Olivia S.
  7. Assessing the sustainability of pension reforms in Europe By Grech, Aaron George
  8. The Retirement Income System and the Risks Faced by Canadian Seniors By Milligan, Kevin; Schirle, Tammy
  9. Care for money? Mortality improvements, increasing intergenerational transfers, and time devoted to the elderly By Tobias Vogt; Fanny A. Kluge
  10. Macroeconomic Determinants of Retirement Timing By Yuriy Gorodnichenko; Jae Song; Dmitriy Stolyarov
  11. How do the level and composition of income change after retirement? Evidence from the LAD By Finnie, Ross; Spencer, Byron G.
  12. Retirement Incomes, Labour Supply and Co-residency Decisions of Older Immigrants in Canada: 1991-2006 By McDonald, James Ted; Worswick, Christopher
  13. Household Consumption at Retirement: A Regression Discontinuity Study on French Data By Nicolas Moreau; Elena Stancanelli
  14. Determinants of the Transition from Work into Retirement By Monika Riedel; Helmut Hofer
  15. Differing types of medical prevention appeal to different individuals. By Bouckaert, Nicolas; Schokkaert, Erik
  16. Senior poverty in Canada: A decomposition analysis By Schirle, Tammy
  17. The Political intergenerational welfare state: A Unified framework By Monisankar Bishnu; Min Wang
  18. Age-productivity patterns in talent occupations for men and women: a decomposition By Barbara Liberda; Joanna Tyrowicz; Magdalena Smyk

  1. By: Bernal, Noelia; Vermeulen, Frederic
    Abstract: We analyze the impact of an increase in the legal retirement age on the effective retirement age in the Netherlands. We do this by means of a dynamic programming model for the retirement behavior of singles. The model is applied to new administrative data that contain very accurate and detailed information on individual incomes and occupational pension entitlements. Our model is able to capture the main patterns observed in the data. We observe that as individuals get older their labor supply declines considerably and this varies by health status. We simulate a soon to be implemented pension reform which aims at gradually increasing the legal retirement age from 65 to 67. The simulation results show a rather small impact on the effective retirement age. Individuals postpone their retirement by only 3 months on average, while differences across individuals mainly depend on their health status.
    Date: 2013–02
  2. By: Milligan, Kevin
    Abstract: Canada and other countries are changing the age of public pension eligibility. A policy concern that arises is the welfare of those exiting the labour force before the age of pension eligibility. This paper addresses the welfare implications of early retirements by examining who isn’t working at older ages, how they form their incomes, and how those exiting the labour market early avoid low income. The paper finds that around three quarters of those not working are able to avoid low-income status. The most important factors for avoiding low income are other family income sources, good health, and employment-related pension income.
    Keywords: Benefits, Canada Pension Plan, Income Security, Low Income, Pension, Retirement, Seniors
    JEL: J26 J32
    Date: 2013–04–29
  3. By: Davies, James B.; Yu, Xiaoyu
    Abstract: This paper explores impacts of recessions on private pensions and retirement savings in Canada. We estimate that the 2008-09 recession saw declines in average family wealth and retirement assets of 11% and 14% respectively. Average wealth recovered by the end of 2010, but retirement assets remained 2% lower than before the recession. Losses were higher for those more exposed to the stock market, such as older workers and retirees with DC pension plans or large RRSPs. Without the recovery the recession would have reduced expected retirement income of future retirees by averages of 3.4% and 11.0% for DB and DC plans respectively. In order to analyze unemployment and early retirement effects, the paper examines a hypothetical economy with a recession once a decade. For DB plans, unemployment caused by recessions can reduce pensions by up to 25% if it strikes late and reduces final average pay. Early retirement may reduce DB pensions up to 50%. Overall, effects tend to be smaller with DC plans, but early career unemployment or early retirement can have substantial impacts. Enhancing CPP/QPP is compared with wide adoption of Pooled RPPs (PRPPs). Expected retirement income is higher with PRPPs but so is risk.
    Keywords: Pensions, Retirement, Recessions, Income, Assets, Wealth
    JEL: D31 E21 E32 H55
    Date: 2013–04–29
  4. By: Veall, Michael R.
    Abstract: Richard Shillington (1999, 2003) estimates that one-third of near-seniors have made Registered Retirement Savings Plans (RRSP) contributions in error as their asset holdings are low enough to suggest that they will likely be Guaranteed Income Supplement (GIS) recipients. Hence they are likely to make RRSP withdrawals at age 65 or older that will be subject to GIS phaseouts. These can make the realized RRSP rate of return low or even negative. This paper reconsiders the Shillington estimate, noting that for an individual age 64 likely to receive GIS, it would appear under many scenarios that the dominating strategy is to cash out the RRSP immediately. Taxfiler data from the Longitudinal Administrative Database is used to examine RRSP withdrawals that actually are subject to GIS phaseouts. The available data, while imperfect, suggest that in part because there are significant RRSP withdrawals during the ages 60 to 64, the Shillington estimate is too high by perhaps a factor of two. However, this is still a large number of seniors. Registered Pension Plan contributions could also arguably be considered as subject to this issue, although relatively few Defined Benefit RPPs allow for cashout at age 64. Some policy implications are considered.
    Keywords: Guaranteed Income Supplement phaseouts; effective return on Registered Retirement Savings Plan contributions; effective return on Registered Pension P
    JEL: J26 E21 D31
    Date: 2013–04–29
  5. By: Finnie, Ross; Gray, David; Zhang, Yan
    Abstract: Our topic is the receipt patterns of low-income support benefits in the form of the guaranteed income supplement (GIS) benefit amongst Canadians who are 65 and older. The GIS regime is the only means-tested public retirement benefit that is targeted to the group of retired individuals and couples. The primary outcome variables are the incidence of receipt of payment amongst this population and the dynamics of entries and exits from this state. Our study is based on administrative data drawn from tax returns. The analysis is in the spirit of the poverty/low-income literature that is fairly developed in regards to the working-age population. In a point of departure from that literature, however, we take a retrospective approach by including in our analysis several phases of the life cycle. We estimate multivariate econometric models of the incidence of receipt among the eligible population, as well as hazard models of both entry and exit from that state. In our estimating equations we include indicators for age and entry cohort. We subsequently include regressors to reflect demographic variables such as gender, marital status, immigration status, minority language status, and regional effects. The fullest specification includes indicators for permanent income and prior savings activity, all calculated based on retrospective information observed when the individual was 50-52 years old. Among our numerous empirical results are an incidence rate that rises sharply with age and is much lower for married than single individuals. In regards to the dynamics, a majority (but not all) of GIS receipt is characterised as persistent.
    Keywords: old age security payment, incidence rate, dynamics, age profile, permanent income, retirement savings
    JEL: H22 H23 H55 J14
    Date: 2013–04–29
  6. By: Hubener, Andreas; Maurer, Raimond; Mitchell, Olivia S.
    Abstract: Household decisions are profoundly shaped by a complex set of financial options due to Social Security rules determining retirement, spousal, and survivor benefits, along with benefit adjustments that vary with the age at which these are claimed. These rules influence optimal household asset allocation, insurance, and work decisions, given life cycle demographic shocks such as marriage, divorce, and children. Our model generates a wealth profile and a low and stable equity fraction consistent with empirical evidence. We also confirm predictions that wives will claim retirement benefits earlier than husbands, while life insurance is mainly purchased by younger men. Our policy simulations imply that eliminating survivor benefits would sharply reduce claiming differences by sex while dramatically increasing men's life insurance purchases. --
    Date: 2013
  7. By: Grech, Aaron George
    Abstract: Europe’s pensions landscape has changed dramatically since the 1990s. This paper tries to assess better the impact of these changes using a broad social sustainability framework. Pension wealth estimates for a variety of hypothetical cases are used to assess the ability of systems to alleviate poverty and maintain living standards, while setting out how reforms could change future costs and relative entitlements for different generations. By focusing on all prospective transfers rather than those at retirement and by looking into the interaction between entitlements and labour participation, this approach provides additional insights on the impact of reforms. Our estimates suggest that generosity has fallen significantly, but remains strong in many countries. However, moves to link benefits to contributions have raised adequacy concerns for certain groups and strengthened the need for longer careers. Though reforms have helped address fiscal challenges, in many countries pressures remain strong and further reforms are likely.
    Keywords: Social Security; Public Pensions; Retirement; Poverty; Retirement Policies
    JEL: H55 I38 J26
    Date: 2013–10–18
  8. By: Milligan, Kevin; Schirle, Tammy
    Abstract: In this paper, we use a risk framework to analyze the risks seniors face and discuss the success of Canada’s retirement income system in insuring against these risks. We focus on four types of risk: (i) the risk of low income at the onset of retirement, (ii) longevity risk, (iii) business cycle risk, and (iv) decision-making risk. The research conducted by CLSRN researchers and others leads us to conclude that, overall, Canada’s retirement income system successfully mitigates against most risks facing Canadian seniors. Important gaps remain, however. Some demographic groups remain at higher risk of poverty at the onset of retirement. Risks of longevity and widowhood are not fully insured. Private savings are subject to financial return risk. The complexity of some retirement income programs makes it difficult for seniors to plan their retirement income optimally.
    Keywords: Seniors, Retirement, Public Policy, Pensions, Risk
    JEL: J14 J18 J26
    Date: 2013–04–29
  9. By: Tobias Vogt (Max Planck Institute for Demographic Research, Rostock, Germany); Fanny A. Kluge (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Background: After the reunification of Germany, mortality among older eastern Germans converged quickly with western German levels. Simultaneously, the pension benefits of eastern Germans rose tenfold. Objective: We make use of German reunification as a natural experiment to show that, first, increasing financial transfers from the elderly to their children led to increasing reverse transfers in the form of care; and, second, this rise in the number of hours spent on care led to a reduction in old-age mortality. Method: As a first step, we calculated intergenerational transfer profiles by age for eastern and western Germany to determine whether any changes in downward and in upward transfers in the form of time and money occurred since reunification. We use generalized linear regression to test whether rising pensions led to an increase in the number of hours spent on care, and whether this increase led to a reduction in old-age mortality. We use different macro level data sources to test our hypothesis, including mortality rates and time use surveys for East and West Germany and information on private intergenerational transfers from the National Transfer Accounts project for Germany. Results: We show that since German reunification, intergenerational downward transfers more than doubled in percentage terms in the east. This was predominantly caused by the sharp increase in pension benefits since the fall of the Berlin Wall. At the same time, mortality among pensioners dropped markedly, and converged to western German levels. We further show that the rise in pension income was strongly correlated with the increase in social support and the decline in mortality among older eastern Germans. Discussion: Our result suggest that there was an interfamilial monetary transfer from the elderly to the young in exchange for social support. This mutual beneficial exchange may have helped to improve the survival of older East Germans after the reunification.
    Keywords: Germany, mortality determinants
    JEL: J1 Z0
    Date: 2013–10
  10. By: Yuriy Gorodnichenko; Jae Song; Dmitriy Stolyarov
    Abstract: We analyze lifetime earnings histories of white males during 1960-2010 and categorize the labor force status of every worker as either working full-time, partially retired or fully retired. We find that the fraction of partially retired workers has risen dramatically (from virtually 0 to 15 percent for 60-62 year olds), and that the duration of partial retirement spells has been steadily increasing. We estimate the response of retirement timing to variations in unemployment rate, inflation and housing prices. Flows into both full and partial retirement increase significantly when the unemployment rate rises. Workers around normal retirement age are especially sensitive to variations in the unemployment rate. Workers who are partially retired show a differential response to a high unemployment rate: younger workers increase their partial retirement spell, while older workers accelerate their transition to full retirement. We also find that high inflation discourages full-time work and encourages partial and full retirement. Housing prices do not have a significant impact on retirement timing.
    JEL: E24 H55 J26
    Date: 2013–11
  11. By: Finnie, Ross; Spencer, Byron G.
    Abstract: This study uses data from the Statistics Canada Longitudinal Databank (the LAD) to address three general questions: (1) How great is the average drop in the level of total income after retirement? (2) What is the composition of income in retirement, and how does it change? and (3) What impact do mid-career income, employment, and locational characteristics have on income levels and composition in retirement? The analysis tracks income, in total and by source, on a year-by-year basis (i.e., at each year of age) from age 50, with the focus of attention on income in the period of retirement. We use both descriptive and regression approaches. In the latter, which focuses entirely on the retirement period, we include mid-career measures of income, employment, and savings behaviour as early predictors of post-retirement incomes.
    Keywords: Income in retirement, retirement, income replacement, age-income profiles
    JEL: J26 J14
    Date: 2013–04–29
  12. By: McDonald, James Ted; Worswick, Christopher
    Abstract: The incomes, hours of work and co-residency behavior of older immigrants in Canada are analyzed using data from the confidential master files of the Canadian Census for the years 1991, 1996, 2001 and 2006. Older immigrants in Canada have lower incomes than the Canadian-born of the same age range and this difference is concentrated in the immigrants who arrived older than age 50. However, there is also evidence that the effects of the lower incomes on the welfare of these immigrants are mitigated to a certain extent through co-residency, presumably with their younger relatives already resident in Canada. Immigrants reside with, on average, more family members than do the Canadian born. A clear pattern is present of immigrant groups with relatively low average incomes being the ones living in larger economic families. Immigrants who arrive at younger ages (25-49) are more likely to be employed and if they are employed, they tend to work longer hours than their Canadian born counterparts. For immigrants who arrived after age 50, their employment decisions do not differ greatly from their Canadian born counterparts; however, if they work, their hours of work tend to be higher. Immigrants have relatively less income from private pensions compared with the Canadian born. Immigrants from non-traditional source countries have low levels of CPP/QPP income relative to immigrants from traditional source countries or the Canadian born. In terms of OAS/GIS income, immigrant men who arrived at age 60 or older have in the order of 50% lower incidence of receiving pension income than do immigrants who arrived at younger ages. In contrast, for immigrant men who arrived age 25-49, we do not see large differences in their incidence or level of income received from OAS/GIS relative to otherwise similar Canadian born men.
    Keywords: Retirement, pensions, income, immigrant, labour supply, housing, gender
    JEL: D31 H24 J14 J48
    Date: 2013–04–29
  13. By: Nicolas Moreau (University of Reunion Island - Université de la Réunion); Elena Stancanelli (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Earlier literature has investigated the drop in household consumption upon retirement of the head of the household, the so-called "retirement consumption puzzle". Here, we expand on these studies by considering also retirement of the wife, thus distinguishing households in which the wife is a "housewife" from 'dual-earners'. We use a regression discontinuity approach to estimate the effect of each partner's retirement on household consumption. We use for the analysis data drawn from the French Consumer Budget Survey 2001 that collected two-week expenditure diaries. We find a significant and sizable drop in food and clothes expenditure upon retirement of the male partner. However, the drop in food expenditure is not robust to specification checks and it becomes statistically insignificant when dropping from the sample couples in which the wife is a housewife.
    Keywords: Consumption; ageing; retirement; regression discontinuity
    Date: 2013–10
  14. By: Monika Riedel (Institute for Advanced Studies (IHS), Vienna); Helmut Hofer
    Abstract: This NEUJOBS research report is concerned with determinants for planned retirement from work in European countries, using data from the 2006 ad hoc module of the European Labour Force Survey. The research uses multivariate analysis, taking into account factors that affect retirement planning including personal as well as workrelated characteristics, and some characteristics of national pension systems. In the context of the NEUJOBS project, the key conclusions of the report is that the interaction between planned retirement age and personal and work-related variables is not identical across Europe. Sex as well as country type need to be taken into consideration. Our results hint at EU states being in different phases of the transition from physically demanding to intellectually demanding work environments, which relates to earlier planned retirement where working is physically more demanding. This interpretation, however, is very tentative due to the crude identification of job characteristics via broad ISCO and NACE codes.
    Date: 2013–04
  15. By: Bouckaert, Nicolas; Schokkaert, Erik
    Abstract: We analyse participation in medical prevention with an expected utility model that is sufficiently rich to capture diverging features of different prevention procedures. We distinguish primary and secondary prevention (with one or two rounds) for both fatal or non-fatal diseases. Moreover, we introduce a flexible relationship between the specific disease for which the prevention procedure is set up and the general background health of the individual. We show how these various possibilities change the comparative statics of the prevention decision and we test the differential predictions with data from SHARE (Survey of Health, Ageing and Retirement in Europe) about participation in mammography, dental caries screening and .u vaccination.
    Date: 2013–05
  16. By: Schirle, Tammy
    Abstract: Using 1977-1979, 1994-1996, and 2006-2008 data from the SCF and SLID, a decomposition analysis of senior poverty rates is conducted to determine whether changes in seniors’ characteristics, and changes in the extent to which characteristics affect senior’s likelihood of poverty, can help explain historical changes in senior poverty rates. The results show that changes in characteristics can explain relatively small changes in senior poverty rates, with changes in education levels playing a significant role. Changes in the extent to which characteristics affect seniors’ likelihood of poverty are shown to be much more important. Overall, the results confirm the importance of retirement income policy for the structure of senior poverty in Canada.
    Keywords: Seniors, poverty, retirement
    JEL: J14 J18 J26 I32
    Date: 2013–04–29
  17. By: Monisankar Bishnu (Indian Statistical Institute, New Delhi); Min Wang (Peking University)
    Abstract: We provide a complete characterization of intergenerational welfare state with education and pension under probabilistic voting where voters internalize the general equilibrium effects materializing in their life-span. We show that as public education is introduced in the economy through the political process of voting, it always increases (reduces) the accumulation of human capital (physical capital), but strikingly, has no effect on the political equilibrium of PAYG social security tax. On the other hand, the introduction of a politically determined PAYG social security most defnitely reduces physical capital accumulation, however it will reduce the human capital accumulation if only if the public education is already present in the economy. Otherwise, it may lead to an increase in the human capital accumulation. We also demonstrate that the general equilibrium effects are crucial to sustain the social security program, and explain why the presence of PAYG social security may not provide su› cient incentive for public investment in education. Finally, we show that the simultaneous arrangement of public education and pension can increase the long-run growth if and only if the relative political weight of the old is small so that the pension program is thin, which makes the result of Boldrin and Montes (2005) study conditional on the intergenerational distribution of voting power in our political economy setup.
    Keywords: Education, Social security, Probabilistic voting, Markov Perfect Equilibrium, Endogenous growth
    JEL: E6 H3 H52 H55 D90
    Date: 2013–05
  18. By: Barbara Liberda (Faculty of Economic Sciences, University of Warsaw); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Magdalena Smyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: One could expect that in the so-called talent occupations, while access to these professions may differ between men and women, gender wage gap should be actually smaller due to high relevance of human capital quality. Wage regressions typically suggest an inverted U-shaped age-productivity pattern. However, such analyses confuse age, cohort and year effects. Deaton (1997) decomposition allows to disentangle these effects. We apply this method to inquire the age-productivity pattern for the so-called “talent†occupations. Using data from a transition economy (Poland) we find that indeed talent occupations have a steeper age-productivity pattern. However, gender differences are larger for talent occupations than for general occupations.
    Keywords: age-productivity pattern, gender wage gap, transition
    JEL: J24 J31 I20 J71
    Date: 2013

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