Understanding Joint Retirement

46 Pages Posted: 17 Sep 2018 Last revised: 22 Nov 2021

See all articles by Pierre-Carl Michaud

Pierre-Carl Michaud

HEC Montreal

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Luc Bissonnette

Université Laval

Date Written: September 2018

Abstract

Evidence from different sources shows that spouses' retirement decisions are correlated. Retirement policies affecting individuals in couples are therefore also likely to affect behavior of their spouses. It is therefore important to account for joint features in modeling retirement. This paper studies a structural collective model of labor supply and retirement of both partners in a couple with interdependent preferences, imperfect knowledge of preferences of the spouse, and subjective expectations about the future. We propose a novel method to estimate preferences and the intra-household bargaining process, which relies on stated preferences data collected in the Health and Retirement Study. Respondents were asked to choose between hypothetical retirement trajectories describing the retirement ages and replacement rates of both spouses from three perspectives: considering their own preferences only, the preferences of their spouse only, or the most likely decision for the household. With these data, all model parameters are identified and potential sources of joint retirement can be disentangled. We find that males misperceive their wives' preferences, overestimating their disutility of work. Our estimates correct for this bias. They suggest that correlation in unobserved heterogeneity components of the partners' marginal utility of leisure explains a large share of joint retirement decisions. We also find significant positive complementarities in leisure, but this explains a much smaller part of joint retirement.

Suggested Citation

Michaud, Pierre-Carl and van Soest, Arthur H. O. and van Soest, Arthur H. O. and Bissonnette, Luc, Understanding Joint Retirement (September 2018). NBER Working Paper No. w25030, Available at SSRN: https://ssrn.com/abstract=3250547

Pierre-Carl Michaud (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Arthur H. O. van Soest

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

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

Luc Bissonnette

Université Laval ( email )

Université Laval, Pavillon J-A-DeSève, #2264
Québec, Quebec G1K 7P4 G1V0A6
Canada

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