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Reforming the retirement scheme: Flexible retirement vs. Legal retirement age

Author

Listed:
  • Juan A. Lacomba

    (Department of Economic Theory and Economic History, University of Granada.)

  • Francisco M. Lagos

    (Department of Economic Theory and Economic History, University of Granada.)

Abstract

We compare a Social Security system where people can retire at the age of their own choice with one in which there is a legal retirement age elected through a majority voting process. We analyze how incentives on retirement decisions change depending on the retirement rules. We show that individuals prefer a legal retirement age higher than that they would choose in the flexible scheme since in this scheme they ignore the impact of their decisions on the Social Security budget constraint. In spite of that, we show that when the legal retirement age significantly limits the retirement age of high-wage workers, a flexible scheme would improve the financing of the pension system. Finally, we show that even when pension benefits are higher with a legal retirement age, a flexible system might be implemented since it would be preferred by a majority of the population composed by low- and high-wage workers.

Suggested Citation

  • Juan A. Lacomba & Francisco M. Lagos, 2009. "Reforming the retirement scheme: Flexible retirement vs. Legal retirement age," ThE Papers 09/01, Department of Economic Theory and Economic History of the University of Granada..
    • Handle: RePEc:gra:wpaper:09/01
    as

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    File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers09_01.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Social security; Flexible retirement; Legal retirement age.;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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