Wealth Shocks and Retirement Timing: Evidence from the Nineties

56 Pages Posted: 31 Jan 2008

See all articles by Purvi Sevak

Purvi Sevak

University of Michigan at Ann Arbor - Mathematica Policy Research

Date Written: April 2002

Abstract

This paper explores whether the timing of retirement responds to unexpected changes in wealth. Although the normality of leisure is a standard assumption in economic models, econometric support for it has not been consistent. The period of the 1990s allows a reexamination of this question because of the large and unexpected capital gains realized by many households. Using the 1992 to 1998 waves of the Health and Retirement Study, and two different identification strategies, I find evidence consistent with the theoretical expectations of wealth effects. Difference-in-differences estimates suggest that a $50,000 wealth shock would lead to a 1.9 percentage point increase in retirement probability among individuals ages 55 to 60. Estimates using panel data on savings and wealth find the elasticity of retirement flows between 1996 and 1998 with respect to wealth is between 0.39 and 0.50 for men.

Suggested Citation

Sevak, Purvi, Wealth Shocks and Retirement Timing: Evidence from the Nineties (April 2002). Michigan Retirement Research Center Research Paper No. WP 2002-027, Available at SSRN: https://ssrn.com/abstract=1088793 or http://dx.doi.org/10.2139/ssrn.1088793

Purvi Sevak (Contact Author)

University of Michigan at Ann Arbor - Mathematica Policy Research ( email )

Ann Arbor, MI 481030
United States