The Importance of Economic Expectations for Retirement Entry
Barbara Broadway, John P de New
Review of Income and Wealth | Wiley | Published : 2020
We estimate hazard rates of retirement entry as a function of the option value of work. Individuals’ economic expectations about the future economy are represented as expectations about rates of return on superannuation retirement savings. These are incorporated into the option value of work, through which they can impact on the timing of retirement entry. We find that individuals have an incentive not to leave the labour force when they expect high returns on their pension savings, while still working. In a scenario where individuals expect negative returns, the average annual hazard rate of retirement entry of 6.9 percent is increased by 0.2 percentage points (or 2.9 percent) compared to a..View full abstract
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Awarded by ARC Discovery Project "Subjective Expectations and Economic Behaviour"
Funded by ARC Discovery Project "Subjective Expectations and Economic Behaviour" (Grant DP130103755). Access to the Consumer Attitudes, Sentiments & Expectations (CASiE) Survey was graciously provided by Guay Lim at the Melbourne Institute. The paper uses the general release file of the Household, Income and Labour Dynamics in Australia (HILDA) survey. HILDA is funded by the Australian Government Department of Social Services (DSS) and managed by the Melbourne Institute. The findings and views reported in this paper are those of the authors alone and should not be attributed to either DSS or the Melbourne Institute. The authors thank Prasada Rao, Efrem Castelnuovo, Deborah Cobb-Clark, Viet Nguyen and Nicolas Salamanca for helpful comments.