Measuring the Optimal Income Replacement Rate: A Panel Data Analysis

TitleMeasuring the Optimal Income Replacement Rate: A Panel Data Analysis
Publication TypeReport
Year of Publication2003
AuthorsAn, C-B, Jeon, S-H
InstitutionSungkyunkwan University, Korea; Dept. of Economics
Call Numberwp_2003/An-Jeon_IIPF2003.pdf
KeywordsConsumption and Savings, Retirement Planning and Satisfaction
Abstract

In order to analyze welfare of retirees, this paper investigates the optimal income replace rate and analyzes how retirement decision affects the post- and pre-retirement consumption. The data analysis using the HRS shows that consumption decreased after retirement for both early and late retirement groups. The post- and pre-retirement consumption ratio (CRATIO) is computed to be 0.922, which implies that the optimal income replacement rate for all retirees is 92.2 . We investigate the interdependence of the decisions on when to retire and how much to consume after retirement (or CRATIO) by using the switching regression model, which tests the hypothesis that early retirement and short labor period induces the low post-retirement income and low post-retirement consumption. The empirical results from the switching regression model show that early retirement decision may affect the post-retirement consumption. After deciding to retire early, retirees would have consumed less than they actually have. The estimation results that used CRATIO as a dependent variables are similar to the results that used post-retirement consumption as a dependent variable.

Endnote Keywords

Consumption/Retirement Behavior

Endnote ID

11632

Citation Key5551