The effect of pension plan type on retirement age: Distinguishing plan incentives from career length preferences

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Abstract

This study uses the Retirement Confidence Survey of College and University Faculty, 2005, to examine the impact of pension plan incentives on retirement age and to understand how the widespread transition from defined benefit (DB) to defined contribution (DC) plans has affected workers. Incentives stemming from differences in pension wealth accrual patterns between DB and DC plans directly induce up to a one-year difference in expected retirement age and are indirectly responsible for up to a two-year difference due to workers sorting into plans based on preferences over career length. The results imply that failing to account for worker sorting leads to an overestimation of the transition's effect on the average retirement age of Americans. In addition, the findings suggest that individuals choose retirement plans to diversify retirement income, which has implications for Social Security reform.

Original languageEnglish (US)
Pages (from-to)104-125
Number of pages22
JournalSouthern Economic Journal
Volume77
Issue number1
DOIs
StatePublished - Jul 2010

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