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Optimal Retirement with Increasing Longevity

David Bloom, David Canning () and Michael Moore ()

Scandinavian Journal of Economics, 2014, vol. 116, issue 3, 838-858

Abstract: We develop an optimizing life-cycle model of retirement with perfect capital markets. We show that longer healthy life expectancy usually leads to later retirement, but with an elasticity less than unity. We calibrate our model using data from the US and find that, over the last century, the effect of rising incomes, which promote early retirement, has dominated the effect of rising lifespans. Our model predicts continuing declines in the optimal retirement age, despite rising life expectancy, provided the rate of real wage growth remains as high as in the last century.

Date: 2014
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Handle: RePEc:bla:scandj:v:116:y:2014:i:3:p:838-858