Inconsistent Retirement Timing

Christoph Merkle, Philipp Schreiber and Martin Weber

Journal of Human Resources, 2024, vol. 59, issue 3, 929-974

Abstract: We study the effect of inconsistent time preferences on actual and planned retirement timing decisions in two independent data sets. Theory predicts that hyperbolic time preferences can lead to dynamically inconsistent retirement timing. In an online experiment with more than 2,000 participants, we find that time-inconsistent participants retire on average 1.75 years earlier than time-consistent participants do. The planned retirement age of nonretired participants decreases with age. This negative age effect is about twice as strong among time-inconsistent participants. The temptation of early retirement seems to rise in the final years of approaching retirement. Consequently, time-inconsistent participants have a higher probability of regretting their retirement decision. We find similar results for a representative household survey (German SAVE panel). Using smoking behavior and overdraft usage as time preference proxies, we confirm that time-inconsistent participants retire earlier and that nonretirees reduce their planned retirement age within the panel.

JEL-codes: D14 D15 D91 H55 J18 J22 J26 (search for similar items in EconPapers)
Date: 2024
Note: DOI: https://doi.org/10.3368/jhr.0920-11215R2
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Persistent link: https://EconPapers.repec.org/RePEc:uwp:jhriss:v:59:y:2024:i:3:p:929-974

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