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The Welfare Cost of Retirement Uncertainty

Frank Caliendo (), Maria Casanova, Aspen Gorry and Sita Slavov

No 22609, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Uncertainty about the timing of retirement is a major financial risk with implications for decision making and welfare over the life cycle. We estimate that the standard deviation of the difference between retirement expectations and actual retirement dates ranges from 4.28 to 6.92 years. We develop a quantitative model to assess the impact of this risk. Individuals would give up 2.6%-5.7% of total lifetime consumption to fully insure this risk and 1.9%-4.0% of lifetime consumption simply to know their actual retirement date at age 23. While social insurance programs could be designed to hedge this risk, current programs in the U.S. (OASI and SSDI) provide very little timing insurance.

JEL-codes: C61 E21 H55 J26 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-age, nep-ias, nep-lma, nep-mac, nep-pbe, nep-sog and nep-upt
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