RETIREMENT DECISIONS EVIDENCE ON RETIREMENT ELASTICITIES

Abstract

The research of retirement decisions focus on the trade-off between the retirement wealth and the planned retirement span. Using 8 waves of the Household, Income and Labour Dynamics in Australia (HILDA) Survey in a continuous time model, we estimate the Frisch elasticity and the relative risk aversion. The retirement decision elasticities (0.21 to 0.25) is low compared to the elasticity of the intertemporal labour supply on the extensive margin. When compared to the theoretical solution using the same model setting the constant relative risk aversion estimate is high (2.2 to 2.3). The finding indicates a low responsiveness to retirement pension benefits. The graph of age profile and a set of regressions show a strong motive on smoothing consumption during the pre-retirement period. This snapshot provides new evidence to explain the impact of financial incentives in the Australian pension system that induces earlier retirement.

Keywords

• Risk Aversion, Intertemporal Labour Substitution Elasticity

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