The Effect of Inheritance Receipt on Retirement
Jeffrey R. Brown
University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics
Wellesley College; National Bureau of Economic Research (NBER)
Scott J. Weisbenner
University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)
This paper uses the receipt of an inheritance to measure the effect of wealth shocks on retirement. Using the Health and Retirement Study (HRS), we first document that inheritance receipt is common among older workers - one in five households receives an inheritance over an eight-year period, with a median value of about $30,000. We find that inheritance receipt is associated with a significant increase in the probability of retirement. In particular, we find that receiving an inheritance increases the probability of retiring earlier than expected by 4.4 percentage points, or 12 percent relative to the baseline retirement rate, over an eight-year period. Importantly, this effect is stronger when the inheritance is unexpected and thus more likely to represent an exogenous shock to wealth.
Number of Pages in PDF File: 31
Keywords: Retirement, inheritance, labor supply, wealth, wealth effect, bequest
JEL Classification: J14, J26
Date posted: July 17, 2006
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