Retirement Expectations and Realizations: The Role of Health Shocks and Economic Factors

This chapter explores the relationship between peoples' expectations about retirement, their realizations of retirement, and the role of health shocks in this process. We look at how accurately people predict retirement and we examine the determinants of changes in retirement expectations. Expectations are made under uncertainty about future health, labor force status, household characteristics, and economic variables; therefore plans must frequently be updated with new information. While many factors influence the decision to retire, we are specifically interested in the role of health shocks in peoples' decisions to alter their plans to retire. Research to date has recognized the importance of understanding the relationship between health and retirement; however, until now, information about health, work, and economic well-being was difficult to obtain in a single survey. The Health and Retirement Study (HRS) is the first national survey to combine comprehensive data on all of these areas. Nevertheless much of the early HRS research has used only the first wave of data, at which time many in the cohort were too young to retire. In this chapter we use new information on this group of people from wave 2, enabling us to observe this cohort moving into retirement. In what follows we first offer a brief discussion of the literature, and then discuss empirical models, data used in the analysis, results and conclusions.