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Retirement Expectations Formation Using the Health and Retirement Study

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  • Hugo Benitez-Silva
  • Debra Dwyer

Abstract

This paper examines how a wide array of factors (household and individual level financial, health and other taste shifter characteristics) influence retirement plans over time and how uncertainty affects the strategies that individuals use to plan their retirement years. Using panel data models we examine the role of health and economic factors on retirement planning using the Health and Retirement Study (HRS). We examine the rationality of plans for retirement controlling for sample selection. After controlling for sample selection, reporting biases, and unobserved heterogeneity we find that plans for retirement do follow the random walk hypothesis and pass tests of weak and strong rationality. These findings allow us to assume rationality and examine retirement plans using first differences. We then examine changes to those factors and the effects of new information on plans and find that new information contributes little to changes in plans. This leads us to conclude that on average people correctly form expectations over uncertain events when planning for retirement. These results have important implications for a wide variety of models in economics that assume rational behavior. Classification-JEL: J26, J22, C23,D84 Keywords: Expectations, Retirement, Panel Data with selection, rationality

Suggested Citation

  • Hugo Benitez-Silva & Debra Dwyer, 2002. "Retirement Expectations Formation Using the Health and Retirement Study," Department of Economics Working Papers 02-04, Stony Brook University, Department of Economics, revised 18 Jun 2002.
    • Handle: RePEc:nys:sunysb:02-04
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    References listed on IDEAS

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    Cited by:

    1. Cobb-Clark, Deborah A. & Stillman, Steven, 2006. "The Retirement Expectations of Middle-Aged Individuals," IZA Discussion Papers 2449, Institute of Labor Economics (IZA).
    2. Julia Lynn Coronado & Maria G. Perozek, 2003. "Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s," Finance and Economics Discussion Series 2003-20, Board of Governors of the Federal Reserve System (U.S.).
    3. Barrett, Alan & Mosca, Irene, 2012. "Announcing an Increase in the State Pension Age and the Recession: Which Mattered More for Expected Retirement Ages?," IZA Discussion Papers 6325, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    expectations; retirement; panel data with selection; rationality;
    All these keywords.

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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