Social Security, Pensions and the Savings and Retirement Behavior of Households

In this paper we formulate and estimate an explicit sequential decision model of savings and work behavior of elderly individuals and couples. More specifcally, we develop a stochastic dynamic model of retirement behavior in which forward-looking individuals are making employment and savings decisions in a setting that accounts for uncertainty about future labor market opportunities, health insurance coverage, health status, survival, and the future generosity of the social security system. The choice environment is characterized by an incomplete health insurance market, the presence and characteristics of employer provided health insurance and private pension plans, the Social Security and Medicare insurance system, and a capital market which applies borrowing limits. The model is estimated using longitudinal data from the Health and Retirement Study. The estimates are used to evaluate the importance of potential earnings, health, social security benefits and employer provided health insurance coverage and pensions in explaining observed retirement behavior, and to simulate the impact of potential social security reforms on life cycle employment and savings behavior and on welfare.

RDA

Savings/Work Behavior/Models, Statistical

10492