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http://ssrn.com/abstract=298266
 
 

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Mortality Change, the Uncertainty Effect, and Retirement


Sebnem Kalemli-Ozcan


University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

David N. Weil


Brown University - Department of Economics; National Bureau of Economic Research (NBER)

January 2002

NBER Working Paper No. w8742

Abstract:     
We examine the role of changing mortality in explaining the rise of retirement over the course of the 20th century. We construct a model in which individuals make labor/leisure choices over their lifetimes subject to uncertainty about their date of death. In an environment in which mortality is high, an individual who saved up for retirement would face a high risk of dying before he could enjoy his planned leisure. In this case, the optimal plan is for people to work until they die. As mortality falls, however, it becomes optimal to plan, and save for, retirement. We simulate our model using actual changes in the US life table over the last century, and show that this 'uncertainty effect' of declining mortality would have more than outweighed the 'horizon effect' by which rising life expectancy would have led to later retirement. One of our key results is that continuous changes in mortality can lead to discontinuous changes in retirement behavior.

Number of Pages in PDF File: 48

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Date posted: January 24, 2002  

Suggested Citation

Kalemli-Ozcan, Sebnem and Weil, David N., Mortality Change, the Uncertainty Effect, and Retirement (January 2002). NBER Working Paper No. w8742. Available at SSRN: http://ssrn.com/abstract=298266

Contact Information

Sebnem Kalemli-Ozcan
University of Maryland - Department of Economics ( email )
College Park, MD 20742
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Koc University, Graduate School of Business ( email )
Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey
David Nathan Weil (Contact Author)
Brown University - Department of Economics ( email )
Box B
Providence, RI 02912
United States
401-863-1754 (Phone)
401-863-1970 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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