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MORTALITY DECLINE, RETIREMENT AGE, AND AGGREGATE SAVINGS

Published online by Cambridge University Press:  24 September 2014

Yanyou Chen  and
Sau-Him Paul Lau
Yanyou Chen
Affiliation:
Duke University
Sau-Him Paul Lau*
Affiliation:
University of Hong Kong
*
Address correspondence to: Sau-Him Paul Lau, Faculty of Business and Economics, University of Hong Kong, Hong Kong; e-mail: laushp@hku.hk.
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Abstract

We use an overlapping-generations model with endogenous retirement and saving to study the trade-off between saving and retirement age in response to mortality decline. When life expectancy increases by one year, people delay retirement by about four months. With this magnitude of delay in retirement age, the percentage of lifetime spent in working decreases, and people have to save more for postretirement years. Neither the pure form of sole adjustment through savings nor the proportionality hypothesis is consistent with our results, but the proportionality hypothesis is a better rule of thumb in predicting future behavior. Our choice of the modified Boucekkine et al. (2002) survival function gives a convenient one-to-one correspondence between life expectancy increase and a change in the survival parameter.

Keywords

Mortality DeclineRetirementSavings
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 3 , April 2016 , pp. 715 - 736
Copyright
Copyright © Cambridge University Press 2014 

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