Full or partial retirement? Effects of the pension incentives and increasing retirement age in the Netherlands and the United States

The share of the older workers in the labor force hasincreased due to population aging and pension reforms inmany countries. However, rules of the public and privatepension schemes and restrictions from the employers stillrequire large populations of older workers with possiblyheteregeneous work preferences to retire fully at a given age.We study the preferences of older people for a rich set ofretirement trajectories characterized by early or delayedfull retirement as well as partial retirement at variousages in the Netherlands and the United States. Two in fiveprefer partial retirement over early or delayed abrupt fullretirement. This suggests that partial retirement can substantiallyincrease the utility derived from work in old age.Furthermore, we study the effects of the pension incentivesand increasing retirement age on the preferences to delayretirement fully or partially as means of reducing publicexpenditure. Individuals want to use partial retirementto extend their work lives if deferring pension rights aremade actuarially attractive or if pension accruals are madeless generous. On the other hand, as the retirement ageincreases, individuals want to retire early or work part-timeinstead of full-time. The comparison of the results betweenthe Netherlands and the United States shows that whilepeople in the Netherlands are responsive to a substitutioneffect of higher pensions, people in the United States areresponsive to an income effect of higher pensions.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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