Pensions, The Option Value of Work, and Retirement / James H. Stock, David A. Wise.

Format:

Book

Author/Creator:

Stock, James H.

Contributor:

National Bureau of Economic Research.

Wise, David A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2686.

NBER working paper series no. w2686

Language:

English

Subjects (All):

Older people--Employment--United States.

Older people.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Cambridge, Mass. : National Bureau of Economic Research, 1988.

Summary:

The paper develops a model of retirement based on the option value of continuing to work. Continuing to work maintains the option of retiring on more advantageous terms later. The model is used to estimate the effects on retirement of firm pension plan provisions. Typical defined benefit pension plans in the United States provide very substantial incentives to remain with the firm until some age, often the early retirement age, and then a strong incentive to leave the firm thereafter. (This may be a major reason for the rapidly declining labor force participation rates of older workers in the United States.) The model fits firm retirement data very well; it captures very closely the sharp discontinuous jumps in retirement rates at specific ages. The model is used to simulate the effect on retirement of potential changes in pension plan provisions. Increasing the age of early retirement from 55 to 60, for example, would reduce firm departure rates between ages 50 and 59 by almost forty percent.

Notes:

Print version record

August 1988.

Includes bibliographical references.