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Reference Points for Retirement Behavior: Evidence from German Pension Discontinuities

Author

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  • Arthur Seibold
Abstract
This paper documents and analyzes an important and puzzling stylized fact about retirement behavior: the large concentration of job exits at specific ages. In Germany, almost 30% of workers retire precisely in the month when they reach one of three statutory retirement ages, although there is often no incentive or even a disincentive to retire at these thresholds. To study what can explain the concentration of retirements around statutory ages, I use novel administrative data covering the universe of German retirees, and I exploit unique variation in financial retirement incentives as well as statutory ages across individuals in the German pension system. Measuring retirement bunching responses to 644 different discontinuities in pension benefit profiles, I first document that financial incentives alone fail to explain retirement patterns in the data. Second, I show that there is a large direct effect of “presenting” a threshold as a statutory retirement age. Further evidence on mechanisms suggests the framing of statutory ages as reference points for retirement as a potential explanation. A number of alternative channels including firm responses are also discussed but they do not seem to drive the results. Finally, structural bunching estimation is employed to estimate reference point effects. Counterfactual simulations highlight that shifting statutory ages via pension reforms can be an effective policy to increase actual retirement ages with a positive fiscal impact.

Suggested Citation

  • Arthur Seibold, 2019. "Reference Points for Retirement Behavior: Evidence from German Pension Discontinuities," CESifo Working Paper Series 7799, CESifo.
    • Handle: RePEc:ces:ceswps:_7799
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    References listed on IDEAS

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    Cited by:

    1. Partha Sen, 2020. "Postponing Retirement and Social Security in a Two Sector Model," CESifo Working Paper Series 8751, CESifo.
    2. Antje Mertens & Laura Romeu-Gordo, 2023. "Retirement in Western Germany – How Workplace Tasks Influence Its Timing," Work, Employment & Society, British Sociological Association, vol. 37(2), pages 467-485, April.
    3. Lalive, Rafael & Magesan, Arvind & Staubli, Stefan, 2020. "The Impact of Social Security on Pension Claiming and Retirement: Active vs. Passive Decisions," IZA Discussion Papers 13537, Institute of Labor Economics (IZA).
    4. Asatryan, Zareh & Joulfaian, David, 2022. "Taxes and Business Philanthropy in Armenia," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 914-930.
    5. Tyrowicz, Joanna, 2020. "Are incentivized old-age savings schemes effective under incomplete rationality?," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224526, Verein für Socialpolitik / German Economic Association.
    6. Gruber, Jonathan & Kanninen, Ohto & Ravaska, Terhi, 2022. "Relabeling, retirement and regret," Journal of Public Economics, Elsevier, vol. 211(C).
    7. Regina T. Riphahn & Rebecca Schrader, 2020. "Labor market effects of early retirement reforms," Working Papers 199, Bavarian Graduate Program in Economics (BGPE).
    8. Francesca Carta & Marta De Philippis, 2021. "Working horizon and labour supply: the effect of raising the full retirement age on middle-aged individuals," Temi di discussione (Economic working papers) 1314, Bank of Italy, Economic Research and International Relations Area.
    9. Joanna Tyrowicz & Krzysztof Makarski & Artur Rutkowski, 2020. "Fiscal incentives to pension savings – are they efficient?," Working Paper series 20-06, Rimini Centre for Economic Analysis.

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    More about this item

    Keywords

    retirement; reference points;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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