Inconsistent Retirement Timing
59 Pages Posted: 11 May 2016 Last revised: 30 Oct 2020
Date Written: September 30, 2020
In an online experiment with more than 2,000 participants, we measure consistency of time preference and study actual and planned retirement timing decisions. Theory predicts that hyperbolic time preferences can lead to dynamically inconsistent retirement timing. We find that time inconsistent participants retire on average 1.75 years earlier than time consistent participants. Participants, who are not yet retired, decrease their planned retirement age as they grow older. This negative effect of age is about twice as strong for time inconsistent participants. The temptation of early retirement seems to rise in the final years of approaching retirement. As a consequence, time inconsistent participants have a higher probability of regretting their retirement decision. In addition, they do not compensate for the loss of social security benefits by purchasing private pension insurance. Using data from a representative household survey (German SAVE panel), we find similar results.
Keywords: Retirement Timing, Time Preferences, Hyperbolic Discounting, Social Security
JEL Classification: D14, D15, D91, H55, J18, J22, J26.
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