Inconsistent Retirement Timing

Merkle, Christoph ; Schreiber, Philipp ; Weber, Martin

Document Type: Article
Year of publication: 2022
The title of a journal, publication series: Journal of Human Resources : JHR
Volume: tba
Issue number: tba
Page range: tba
Place of publication: Madison, Wis.
Publishing house: Univ. of Wisconsin Press
ISSN: 0022-166X , 1548-8004
Publication language: English
Institution: Business School > ABWL u. Bankbetriebslehre (Seniorprofessur) (Weber 2017-)
Subject: 330 Economics
Classification: JEL: D14 , D15 , D91 , H55 , J18 , J22 , J26,
Keywords (English): retirement timing , time preferences , hyperbolic discounting , social security
Abstract: In an online experiment with more than 2,000 participants, we measure consistency of time preference and study actual and planned retirement timing decisions. Theory predicts that hyperbolic time preferences can lead to dynamically inconsistent retirement timing. We find that time inconsistent participants retire on average 1.75 years earlier than time consistent participants. Participants, who are not yet retired, decrease their planned retirement age as they grow older. This negative effect of age is about twice as strong for time inconsistent participants. The temptation of early retirement seems to rise in the final years of approaching retirement. As a consequence, time inconsistent participants have a higher probability of regretting their retirement decision. In addition, they do not compensate for the loss of social security benefits by purchasing private pension insurance. Using data from a representative household survey (German SAVE panel), we find similar results.

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