A health production model with endogenous retirement.
We formulate a stylized structural model of health, wealth accumulation and retirement decisions building on the human capital framework of health and derive analytic solutions for the time paths of consumption, health, health investment, savings and retirement. We argue that the literature has been unnecessarily restrictive in assuming that health is always at the 'optimal' health level. Exploring the properties of corner solutions, we find that advances in population health decrease the retirement age, whereas at the same time, individuals retire when their health has deteriorated. This potentially explains why retirees point to deteriorating health as an important reason for early retirement, whereas retirement ages have continued to fall in the developed world, despite continued improvements in population health and mortality. In our model, workers with higher human capital invest more in health and, because they stay healthier, retire later than those with lower human capital whose health deteriorates faster.
RAND Corporation, Santa Monica, California, USA. galama@rand.org
Titus
T
Galama
Arie
A
Kapteyn
Raquel
R
Fonseca
Pierre-Carl
PC
Michaud
D000367:Age Factors; D000368:Aged; D000369:Aged, 80 and over; D004651:Employment / Q000191:economics / Q000706:statistics & numerical data; D005260:Female; D017048:Health Care Costs / Q000706:statistics & numerical data; D006304:Health Status; D006801:Humans; D008297:Male; D008875:Middle Aged; D008962:Models, Theoretical; D012179:Retirement / Q000191:economics / Q000706:statistics & numerical data; D012456:Salaries and Fringe Benefits / Q000706:statistics & numerical data