UNDERSTANDING JOINT RETIREMENT DECISIONS IN COUPLES

Rand Corporation, Santa Monica CA

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Abstract

The key objective of the proposed research is to understand the separate impact of health status, social security and disability programs, employer pension incentives, spousal care giving, and preferences for joint leisure on the retirement decisions of individuals in couples. The detailed health and economic data in the English Longitudinal Study of Aging (ELSA) and the Health and Retirement Study (HRS) provide a unique opportunity for this analysis and are also ideal for the comparative work proposed here. The UK provides a particularly useful point of comparison with the US as many couples approaching retirement in the UK have quite different combinations of public and private pensions with quite different structures with respect to accrual rates, early retirement dates and normal retirement dates. Among those aged 50-65 in couples in the UK, the first data from ELSA have already shown the variety of pension arrangements. This is the first data source in the UK to allow such a careful analysis. Also the incentives in the disability system and the way they interact with other components of social insurance are quite different in the UK, and will help distinguish disability insurance incentives from the direct impact of health events on retirement decisions by couples. The complicated interactions between the financial incentives available to older individuals in couples and the measurement of their health status make careful modeling and detailed longitudinal data essential. ELSA and HRS fulfill both of these requirements. We propose two alternative approaches to modeling joint retirement decisions and the impact of health, family considerations, and retirement incentives: a quasi-reduced form panel data model and a fully specified collective dynamic programming model.