Happy Together: A Structural Model of Couples' Joint Retirement Choices

TitleHappy Together: A Structural Model of Couples' Joint Retirement Choices
Publication TypeReport
Year of Publication2010
AuthorsCasanova, M
KeywordsRetirement Planning and Satisfaction
Abstract

Evidence from different sources shows that a signicant proportion of spouses retire within less than a year from each other, independently of the age difference between them. The existing reduced- form analyses of couples' retirement suggest that this is partly due to complementarities in spouses' tastes for leisure, which are present when one or both partners enjoy retirement more if the other is retired as well. In order to accurately estimate the role of leisure complementarities, it is essential to appropriately control for incentives to joint retirement acting through the household budget con- straint. This paper presents a structural, dynamic model of older couples' saving and participation decisions which allows for the complementarities in spouses' leisure and where the nancial incentives and uncertainty facing spouses are carefully modeled. Couples are heterogeneous in household wealth and spouses' wages, pension claims, and health status. They face uncertainty in earnings, medical costs, and survival. The model parameters are estimated using a sample of older individuals from the Health and Retirement Study. Estimation results show that leisure complementarities are positive for both husband and wife and account for up to 8 percent of observed joint retirements. The social security spousal benefit is found to account for an extra 13 percent of them. These results imply that incentives for joint retirement play a crucial role in determining individual choices. Since these incentives cannot be captured in a model that takes one spouse's behavior as exogenous, this sug- gests that individual models of retirement are no longer an appropriate approximation of the average household's behavior, given the increasing number of working couples approaching retirement age.

URLhttp://www.econ.ucla.edu/casanova/Files/Casanova_joint_ret.pdf
Endnote Keywords

joint retirement

Endnote ID

25340

Citation Key5812