The Determination of Optimal Retirement Age Using Optimal Control Theory
20 Pages Posted: 19 Jul 2011
Date Written: June 20, 2011
In this paper, we discuss how to determine optimal retirement age using an optimal control theory. We establish a life cycle model and analyze the factors of consumption, leisure, saving, mortality and retirement behaviors simultaneously with an orthogonal–array experimental design. Our results show that the initial salary level and the growth rate of salary are the most important determining factors of the optimal retirement age. The initial consumption level and the interest rate are also important factors affecting optimal retirement age. The mortality improvement has a minor effect on the optimal retirement age. The effects of the Social Security on the optimal retirement age depend on the Social Security tax and the Social Security benefit.
Keywords: retirement age, optimal control theory, social security
JEL Classification: C0
Suggested Citation: Suggested Citation