Reference Points for Retirement Behavior: Evidence from German Pension Discontinuities
American Economic Review · 2021 · Volume 111 · Issue 4
Abstract
This paper studies the large concentration of retirement behavior around statutory retirement ages, a puzzling stylized fact. To investigate this fact, I estimate bunching responses to 644 pension benefit discontinuities, using administrative data on the universe of German retirees. Financial incentives alone cannot explain retirement patterns, but there is a large direct effect of statutory retirement ages. I argue that the framing of statutory ages as reference points for retirement provides a plausible explanation. Simulations based on a model with reference dependence highlight that shifting statutory ages via pension reforms is an effective policy to influence retirement behavior.
Keywords
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, Social Security and Public Pensions, Retirement, Retirement Policies, Nonwage Labor Costs and Benefits, Retirement Plans, Private Pensions
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