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Cohort and target age effects on subjective survival probabilities: Implications for models of the retirement phase

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  • Wu, Shang
  • Stevens, Ralph
  • Thorp, Susan

Abstract

Subjective survival scaling factors are often estimated from one observation of life expectancy and treated as constant to any target age. Using new survey data on subjective survival probabilities, we estimate a model incorporating cohort- and target age-varying beliefs in scaling factors. Both cohort age and target age matter: respondents are pessimistic about overall life expectancy but optimistic about survival at advanced ages, and older respondents are more optimistic than younger. We propose a new theoretical model incorporating cohort- and target age-varying beliefs and illustrate their effects on the perceived value of annuities and on retirement phase consumption plans.

Suggested Citation

  • Wu, Shang & Stevens, Ralph & Thorp, Susan, 2015. "Cohort and target age effects on subjective survival probabilities: Implications for models of the retirement phase," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 39-56.
    • Handle: RePEc:eee:dyncon:v:55:y:2015:i:c:p:39-56
    DOI: 10.1016/j.jedc.2015.03.003
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    More about this item

    Keywords

    Subjective life expectancy; Unobservable heterogeneity; Rational expectations; Life cycle model;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • I10 - Health, Education, and Welfare - - Health - - - General

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