Retirement Behavior in the U.S. and Europe

By Jochem de Bresser, Raquel Fonseca and Pierre-Carl Michaud

We develop a retirement model featuring various labor market exit routes: unemployment, disability, private and public pensions. The model allows for saving and uncertainty along several dimensions, including health and mortality. Individuals’ preferences are estimated on data from the U.S. and Europe using institutional variation across countries. We analyze the roles of preferences and institutions in explaining international heterogeneity in retirement behavior. Preliminary estimates suggest that a single set of preferences for individuals from the U.S., the Netherlands and Spain does not fit the data well. Were Europeans to have the same preferences as Americans, they would save less than they actually do. Furthermore, the Dutch and Spanish would work more hours than is observed in the data.

Interesting that the one-size-fits-all approach for preferences does not apply, at least in this case. I wonder how those differences in preferences can be explained. If this is not from an estimation issue (model miss-specification, for example), then what drives them? Tradition/history? Demographics? Anything else?


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