ESTIMATING RETIREMENT MODELS USING SUBJECTIVE DATA

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DESCRIPTION: The basic aim of this research is to improve understanding of retirement behavior. More specifically, the goal is to provide quantitative estimates of the impact of potential social security reforms on life cycle employment and savings behavior. To accomplish that goal, the proposed research will specify and structurally estimate dynamic models of retirement using the new Health and Retirement Survey (HRS) and incorporating health, mortality, savings, and social security rules. In that context, the specific aims of the project are: (1)to develop and validate methods for solving dynamic optimization models that involve discrete and continuous choice variables and state space elements; (2)to implement a stochastic dynamic model of retirement behavior in which individuals are making employment and savings decisions in a setting that accounts for uncertainty about future wages, future health and survival, and the future generosity of the Social Security System; (3)to develop methods for the validation of survey questions involving subjective expectations about the future environment (constraints) and future choices; (4)to develop and implement methods for the incorporation of data on subjective expectations into the estimation of dynamic models of retirement; (5) to simulate the effect of potential policy changes in social security rules on the savings and retirement decision and on welfare. The proposed research connects two broad areas of research. First, and primarily, it builds on recent empirical studies of retirement behavior, in particular on those adopting dynamic structural approaches. Second, the research contributes to the relatively new and growing literature of empirical studies that make use of subjective expectations.