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Mortality Change, the Uncertainty Effect, and Retirement

48 Pages Posted: 24 Jan 2002  

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 2002

Abstract

We examine the role of changing mortality in explaining the rise of retirement over the course of the 20th century. We construct a model in which individuals make labor/leisure choices over their lifetimes subject to uncertainty about their date of death. In an environment in which mortality is high, an individual who saved up for retirement would face a high risk of dying before he could enjoy his planned leisure. In this case, the optimal plan is for people to work until they die. As mortality falls, however, it becomes optimal to plan, and save for, retirement. We simulate our model using actual changes in the US life table over the last century, and show that this 'uncertainty effect' of declining mortality would have more than outweighed the 'horizon effect' by which rising life expectancy would have led to later retirement. One of our key results is that continuous changes in mortality can lead to discontinuous changes in retirement behavior.

Suggested Citation

Kalemli-Ozcan, Sebnem and Weil, David N., Mortality Change, the Uncertainty Effect, and Retirement (January 2002). NBER Working Paper No. w8742. Available at SSRN: https://ssrn.com/abstract=298266

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

David Nathan Weil (Contact Author)

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-1754 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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