Retirement as a hedge

  • Pierre Pestieau Pierre Pestieau
  • Uri Possen Uri Possen

This paper explores the effect of letting individuals choose theirretirement age in a world of uncertainty where there exist both defined benefit (DB) and defined contribution (DC) pension plans. The paper shows that giving individuals the flexibility to determine when to retire is an important tool for them when they are hedging against future uncertainty. It also finds that it is preferable to let people make their retirement decision after rather than before the uncertainty is lifted.Finally, it shows that shifting from DB to DC plans fosters the rateof activity of elderly workers.

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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