A Theory of Reverse Retirement

The retirement system is usually regarded as giving a fair reward for a long life of labor. However, the fairness of that system can be questioned, on the grounds that only workers who have a su¢ ciently long life benefit from that reward, but not workers who die prematurely. In order to reexamine the fairness of retirement systems under unequal lifetime, this paper compares standard retirement (i.e. individuals work before being retired) with - purely hypothetical - reverse retirement (i.e. individuals are retired before working). We first show that, whereas reverse retirement cannot be a social optimum under the utilitarian criterion (unlike standard retirement), reverse retirement can be optimal under the ex post egalitarian criterion (giving priority to the worst-o¤ in realized terms). From an ex post egalitarian perspective, reverse retirement dominates standard retirement in economies with high life expectancy and a flat age-productivity profile, whereas the opposite holds in less developed economies.