Template-Type: ReDIF-Paper 1.0
Author-Name:  Sebnem Kalemli-Ozcan
Author-X-Name-First: Sebnem
Author-X-Name-Last: Kalemli-Ozcan
Author-Email:  sebnem.kalemli-ozcan@mail.uh.edu
Author-Workplace-Name: Department of Economics, University of Houston
Author-Name:  David N. Weil
Author-X-Name-First: David
Author-X-Name-Last: Weil
Title:  Mortality Change, the Uncertainty Effect, and Retirement
Abstract: We examine the role of declining mortality in explaining the rise of retirement over the
course of the 20th century. We construct a model in which individuals make labor/leisure
choices over their lifetimes subject to uncertainty about their date of death. In an environment
in which mortality is high, an individual who saved up for retirement would
face a high risk of dying before he could enjoy his planned leisure. In this case, the
optimal plan is for people to work until they die. As mortality falls, however, it becomes
optimal to plan, and save for, retirement. We simulate our model using actual changes
in the US life table over the last century, and show that this “uncertainty effect” of declining
mortality would have more than outweighed the “horizon effect” by which rising
life expectancy would have led to later retirement. A calibration exercise, allowing for
heterogeneity in tastes and other non-mortality factors influencing retirement, shows that
falling mortality plausibly had a quantitatively significant effect on retirement.
Length:  36 pages
Creation-Date:  2004-08
File-URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/2004-04.pdf
File-Format: Application/pdf
Number: 2004-04
Classification-JEL: E21, I12, J11, J26
Keywords: 
Handle: RePEc:hou:wpaper:2004-04