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Optimal Retirement Age: Death Hazard Rate Approach

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  • Linden, Mikael

Abstract

A model with special attention on the (subjective) survival probability is proposed to understand salient aspects of retirement age decision. Optimal retirement age results are derived with a death hazard rate function having non-negative duration dependence. At the optimum age, the retiree wants to have a compensation in the form of early retirement for his/her evident non-zero death risk. A retiree with large welfare inputs supporting mortality risk decreasing effects delays his/her retirement time. From policy perspective we need to lower the elderly health costs to reduce the death hazard rates leading to higher optimal retirement ages. Some empirical findings with the birth year 1947 cohort in Finland do not conflict the model results. Death hazard rate function estimates show that gender, health, civil status, incomes, and pension affect the death hazard rates. The retirement age has a longevity increasing effect across the different model specification.

Suggested Citation

  • Linden, Mikael, 2024. "Optimal Retirement Age: Death Hazard Rate Approach," MPRA Paper 120786, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120786
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    More about this item

    Keywords

    Optimal retirement age; survival probabilities; death hazard rate function; survival model estimation; frailty.;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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