The Effect of Wealth and Earned Income on the Decision to Retire: A Dynamic Probit Examination of Retirement

32 Pages Posted: 15 Feb 2014

See all articles by Keith A. Bender

Keith A. Bender

University of Aberdeen - Business School

Kostas G. Mavromaras

University of Melbourne - Melbourne Institute: Applied Economic & Social Research; IZA Institute of Labor Economics

Ioannis Theodossiou

University of Aberdeen - Business School

Zhang Wei

Flinders University

Abstract

This paper estimates the propensity to retire and the persistence of remaining retired once the decision to retire has been made in the US labour market, using a dynamic panel probit model. The estimated income effect of higher housing wealth is virtually zero and that of financial assets wealth is positive, increasing the retirement probability. The substitution effect of earned income is negative, thus decreasing the retirement probability. The retirement decision is strongly state persistent for up to three years after the initial retirement decision and the state persistence of retirement is reinforced by wealth and earned income.

Keywords: retirement decision, retirement dynamics, dynamic panel estimation, income and wealth

JEL Classification: J14, J26

Suggested Citation

Bender, Keith A. and Mavromaras, Kostas G. and Theodossiou, Ioannis and Wei, Zhang, The Effect of Wealth and Earned Income on the Decision to Retire: A Dynamic Probit Examination of Retirement. Available at SSRN: https://ssrn.com/abstract=2396422 or http://dx.doi.org/10.2139/ssrn.2396422

Keith A. Bender (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Kostas G. Mavromaras

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ioannis Theodossiou

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Zhang Wei

Flinders University

GPO Box 2100
Adelaide S.A. 5001, SA 5063
Australia

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