SYMPOSIUM on assets, incomes and retirement

In most developed countries, an increase in the retirement-aged population has put considerable financial pressure on public pension systems. In response, a number of countries have reformed their systems and have encouraged a substitution toward private pensions and tax-sheltered saving. As the baby-boom cohort reaches retirement age, it is likely that further policy change will be required; however, knowledge about the behaviour of people as they approach and reach retirement age and how they might react to policy change is vital for the formulation of good policy. In the UK, for example, the fiscal treatment of pensions has changed, leading to changes in the way people save for retirement. We would like to know if this has altered retirement behaviour and changed economic resources following retirement. We would like to learn how further policy changes may affect future behaviour. It is fortunate that we have available a new dataset — the Retirement Survey — that can be used to answer these kinds of questions. The three papers in this symposium analyse some of the data from this survey.

Estimating the Family Labor Supply Functions Derived from the Stone-Geary Utility Function

The Stone-Geary utility function defined over an index of goods, the leisure of the husband, and the leisure of the wife is used to derive the earnings functions of the husband and the wife. The parameters of the utility function are estimated from the parameters of the earnings functions in a way that accounts for a number of theoretical and statistical problems. The effect of family composition on utility is estimated by specifying and estimating adult equivalents in consumption and leisure of various categories of children. On the statistical side the following difficulties are all considered: nonlinear constraints across equations, endogenous marginal income tax rates, variations in tastes in the population, heteroscedasticity, and truncation of the left-hand variable. The data come from the 1967 Survey of Economic Opportunity. The results are generally good and support the view that the effects of family composition on utility can be estimated from behavioral relationships. Alternative results that ignore the complicated statistical problems are presented; they imply that the statistical problems are empirically important and should not be ignored.

The Joint Retirement Decision of Husbands and Wives

The objective of the paper is to find empirically whether husbands and wives tend to retire at the same time, and to give an explanation of the findings. Similarity of retirement dates could be caused by similarity of tastes (assortative mating), by economic variables, or by the complimentarity of leisure. Each explanation would have different implications for the response of retirement to policy changes. Both simple data analysis and economic models of the age of retirement point to coordination of retirement dates: husbands and wives tend to retire at the same time. According to the results, very little of the coordination is due to economic variables, and simple cross-tabulations rule out assortative mating as an important explanation. This leaves complimentarity of leisure. Because of data limitations, this conclusion is, however, mainly qualitative. The data set is the Mew Beneficiary Survey.

The Effects of Demographic Trends on Consumption, Saving and Government Expenditures in the U.S.

This paper reviews and analyzes forecasts of the Social Security trust funds, government spending, medical expenditures, and other elements of aggregate income and spending. According to these forecasts, the aging of the U.S. population will require some increases in taxes to support the retirement system. It should reduce the saving rate, and the composition of output will change. By themselves, these changes seem manageable. However, the direct effects of aging are completely dominated by the projected increases in medical expenditures. Although medical costs interact with aging, most of the increases are not related to aging. Even the moderately high forecast of medical spending will require that all increases in output between now and 2020 be devoted to the consumption of medical services, allowing no increase in any other component of consumption.

Savings and Bequests

Empirical studies have indicated that the elderly seem to accumulate wealth after retirement, and that the desire to leave bequests is an important determinent of saving behavior, both kinds of results have cast doubt on the validity of the life cycle hypothesis of consumption. In the first part of this paper, a model of bequests is specified, and the implications for consumption and wealth trajectories are derived. The main result is that, even with a bequest motive, consumption generally decreases with age after retirement, and that wealth will also decrease for all but wealthy households. In the empirical part of the paper, wealth changes of retired households are reported over 10 years of panel data. Contrary to many results from cross-section data, the elderly do dissave: over 10 years the wealth of the elderly in the sample decreases by about 27 real. A test for a bequest motive is proposed. There is no evidence whatsoever for abequest motive.