MORTALITY DECLINE, RETIREMENT AGE, AND AGGREGATE SAVINGS

Yanyou Chen and Sau-Him Paul Lau

Macroeconomic Dynamics, 2016, vol. 20, issue 3, 715-736

Abstract: We use an overlapping-generations model with endogenous retirement and saving to study the trade-off between saving and retirement age in response to mortality decline. When life expectancy increases by one year, people delay retirement by about four months. With this magnitude of delay in retirement age, the percentage of lifetime spent in working decreases, and people have to save more for postretirement years. Neither the pure form of sole adjustment through savings nor the proportionality hypothesis is consistent with our results, but the proportionality hypothesis is a better rule of thumb in predicting future behavior. Our choice of the modified Boucekkine et al. (2002) survival function gives a convenient one-to-one correspondence between life expectancy increase and a change in the survival parameter.

Date: 2016
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