The Pension Inducement to Retire: An Option Value Analysis / James H. Stock, David A. Wise.

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Stock, James H

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w2660.Publication details: Cambridge, Mass. National Bureau of Economic Research 1988.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The option value model developed in an earlier paper is used to simulate the effect on retirement of changes in a firm's pension plan compared to the effect of changes in Social Security provisions. The provisions of the firm's pension plan have a much greater effect than Social Security regulations on the retirement decisions of the firm's employees. The analysis supports the following conclusions: (1) Increasing the firm's early retirement age from 55 to 60, for example, would reduce by almost 40 percent, from .48 to .30, the fraction of employees that is retired by age 60. (2) The effect of changes in Social Security rules, on the other hand, would be small. Raising the Social Security retirement ages by one year, for example, has very little effect on employee retirement rates. The proportion retired by age 62 is reduced by only about 4 percent. (3) Changes in Social Security provisions that would otherwise encourage workers to continue working can easily be offset by countervailing changes in the provisions of the firm's pension plan. Firm responses, like delaying the Social Security offset to correspond to m later Social Security retirement age, may simply be m logical revision of current firm plan provisions.

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Working Paper	Biblioteca Digital	Colección NBER	nber w2660 (Browse shelf(Opens below))	Not For Loan

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July 1988.

The option value model developed in an earlier paper is used to simulate the effect on retirement of changes in a firm's pension plan compared to the effect of changes in Social Security provisions. The provisions of the firm's pension plan have a much greater effect than Social Security regulations on the retirement decisions of the firm's employees. The analysis supports the following conclusions: (1) Increasing the firm's early retirement age from 55 to 60, for example, would reduce by almost 40 percent, from .48 to .30, the fraction of employees that is retired by age 60. (2) The effect of changes in Social Security rules, on the other hand, would be small. Raising the Social Security retirement ages by one year, for example, has very little effect on employee retirement rates. The proportion retired by age 62 is reduced by only about 4 percent. (3) Changes in Social Security provisions that would otherwise encourage workers to continue working can easily be offset by countervailing changes in the provisions of the firm's pension plan. Firm responses, like delaying the Social Security offset to correspond to m later Social Security retirement age, may simply be m logical revision of current firm plan provisions.