The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving

David Bloom, David Canning and Michael Moore

No 10919, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a life-cycle model of optimal retirement and savings behavior under complete markets where retirement is caused by worsening health in old age. Our model explains the long-run decline in the age of retirement as an income level effect. We show that improvements in health and longevity tend to increase the desired retirement age, though less than proportionately, while, contrary to conventional views, reducing savings rates. The retirement age is not simply proportional to healthy life span because compound interest creates a wealth effect when lifespan increases, leading to more leisure (early retirement) and higher consumption (lower savings).

JEL-codes: D91 J26 (search for similar items in EconPapers)
Date: 2004-11
Note: AG EH LS
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Citations: View citations in EconPapers (33)

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Working Paper: The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving (2005)
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