An experimental test on retirement decisions

Abstract

As part of the current debate on the reform of pension systems, this paper presents an original experimental test where subjects face three different payoff sequences with identical expected value. Two central questions are analyzed. First, whether the distribution of retirement benefits across time influences the retirement decision. And second, whether actuarially fair pension systems distort the retirement decision. The results indicate both that a lump-sum payment rather than annuity benefits is far more effective in delaying the retirement decision and that recent reforms that encourage the link between lifetime contributions and pension benefits to delay the retirement decision should take into account timing considerations. (JEL C91, H55, J26) © 2007 Western Economic Association International.