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Pension reductions: can welfare be preserved by delaying retirement?

Published online by Cambridge University Press:  16 November 2007

MARIE-EVE LACHANCE
MARIE-EVE LACHANCE
Affiliation:
Department of Finance, College of Business Administration, San Diego State University (e-mail: Marie.Lachance@sdsu.edu)
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Abstract

Economic and demographic pressures may lead Social Security systems and employers to reduce their pensions in the future. Can delaying retirement help preserve welfare in that context? We examine this question with a life-cycle framework which includes the utility from leisure. One unique feature of our model is that it lets the retirement date be endogenously determined, unless an external constraint or shock applies first. By solving this model we find that, in reasonable scenarios, working longer does little to mitigate the negative impact of pension reductions on welfare. Building on our model, we suggest strategies to enhance the effectiveness of policies designed to induce and enable longer working lives.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 7 , Issue 2 , July 2008 , pp. 157 - 177
Copyright
Copyright © 2007 Cambridge University Press

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