Aggregate Health Shock and Retirement Decision

Hyunduk Suh and SeEun Jung ()

No 2022-1, Inha University IBER Working Paper Series from Inha University, Institute of Business and Economic Research

Abstract: The retirement of old workers increased during the COVID-19 pandemic, and health concerns are considered as a critical factor. To isolate the effect of pure health concerns during the pandemic, we analyze the impact of the aggregate health shock on retirement decisions using a life-cycle model. The aggregate health shock changes the economy from the normal state to the pandemic state, where the probability of adverse idiosyncratic health shock increases, especially if agents are working. Simulation results suggest that the shock accelerates the retirement of agents aged between 60 and 64. Its impact is quantitatively greater than the effect of a five percent reduction in labor income. The retirement response is heterogeneous across agent types, influenced by various factors, including preference, income, health status, and health expenditure. The negative effect of the aggregate health shock is significant even though the shock is expected to be temporary. Also, the effect hinges on the assumption that working poses a greater risk of receiving a negative health shock than retiring.

Keywords: Retirement; Health shock; COVID-19; Life-cycle model (search for similar items in EconPapers)
JEL-codes: E24 I18 J26 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2022-03
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-lma and nep-mac
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Journal Article: Aggregate health shock and retirement decision (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:inh:wpaper:2022-1

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