The Financial Implications of Working Longer: An Application of a Micro-Economic Model of Retirement in Belgium

Abstract

In thi s paper , the costs a n d benefi ts associ ated wi t h postponi ng reti rement a r e si mu l a ted i n a s t a n d a r d s i mu la t i o n mo d e l fo r Be lg i u m, u s in g t h e appr oach of S t ock and Wi se (199 0) . Unlike earl ier mi crosimul ation-base d ap pl i c ati o ns of thi s approac h , such as G r uber and Wi se (1 999, 2 0 04), thi s model does not take a represen tati ve sample as the poi n t of departure, but si mu l a tes the costs and benefi ts of postponing retirement for four fictitious employees, representing male and female whit e- and blue-collar workers. While confir ming conclusions drawn by other authors, this model allows for the separation of specific retirement schemes, and of the effect of diffe rent fiscal regimes for those retired and working. It is shown that differences between retirement schemes show up in differences in replacement rates and by whether or not the retirement benefit is a function of career length. Furthermore, advantageous fiscal regulations for the retired have a strong impact on the implicit costs of postponing retirement.