Retirement

Retirement is the withdrawal from one's position or occupation or from one's active working life."Definition of retirement" Merriam Websters A person may also semi-retire by reducing work hours or workload.

Many people choose to retire when they are elderly or incapable of doing their job for health reasons. People may also retire when they are eligible for private or public pension benefits, although some are forced to retire when bodily conditions no longer allow the person to work any longer (by illness or accident) or as a result of legislation concerning their positions.For example, in the United States, a person holding the rank of general or admiral must retire after 40 years of service unless he or she is reappointed to serve longer. (10 USC 636 Retirement for years of service: regular officers in grades above brigadier general and rear admiral (lower half)) In most countries, the idea of retirement is of recent origin, being introduced during the late-nineteenth and early-twentieth centuries. Previously, low life expectancy, lack of social security and the absence of pension arrangements meant that most workers continued to work until their death. Germany was the first country to introduce retirement benefits in 1889."The German Precedent" Social Security History, US Social Security Administration

Nowadays, most developed countries have systems to provide pensions on retirement in old age, funded by employers or the state. However, only about 15% of private industry workers in the US had access to a traditional defined benefit pension plan as of March 2023.These plans, often called pensions, are increasingly rare, especially in the private sector, as most companies now offer defined contribution plans like 401(k)s instead. Public sector workers have much higher pension coverage, with about 75% participating in pension plans

In many poorer countries, there is no support for the elderly beyond that provided through the family. Today, retirement with a pension is considered a right of the worker in many societies; hard ideological, social, cultural and political battles have been fought over whether this is a right. In many Western countries, this is a right embodied in national constitutions.

An increasing number of individuals choose or are forced to put off this point of total retirement and exist in the emerging state of pre-tirement.

History

Retirement, or the practice of leaving one's job or ceasing to work after reaching a certain age, has been around since around the 18th century. Countries began to adopt government policies on retirement during the late 19th century and the 20th century, beginning in Germany under Otto von Bismarck.

Retirement age

A person may retire at whatever age they please. However, a country's tax laws or state old-age pension rules usually mean that in a given country a certain age is thought of as the standard retirement age. As life expectancy increases and more and more people live to an advanced age, in many countries the retirement age at which the public pension is awarded has been increased in the 21st century, often progressively.

The standard retirement age varies from country to country but it is generally between 50 and 70 (according to latest statistics, 2011). In some countries this age is different for men and women, although this has recently been challenged in some countries (e.g., Austria), and in some countries the ages are being brought into line. The table below shows the variation in eligibility ages for public old-age benefits in the United States and many European countries, according to the OECD.

The retirement age in many countries is increasing, often starting in the 2010s and continuing until the late 2020s. Country Early retirement age Normal retirement age Employed, 55–59 Employed, 60–64 Employed, 65–69 Employed, 70+ Austria 60 (57)65 (60)39%7%1%0% Belgium 606545%12%1%0% Cambodia 505516%1%0%0% Denmark 1 60–6565–6877%35%9%3% France 2 626551%12%1%0% Germany 656761%23%3%0% Greece 586765%18%4%0% Italy 576726%12%1%0% Latvia 3 none63–65???? Netherlands 6065 (67)53%22%3%0% Norway 626774%33%7%1% Spain 4 606546%22%0%0% Sweden 616578%58%5%1% Switzerland 63 (61), 65 (64)77%46%7%2% Thailand 5060???? United Kingdom 656869%40%10%2% United States 5 626766%43%20%5% Kenya 505566%43%20%5% Notes: Parentheses indicate eligibility age for women when different. Sources: Cols. 1–2: OECD Pensions at a Glance (2005), Cols. 3–6: Tabulations from HRS, ELSA and SHARE. Square brackets indicate early retirement for some public employees.

1 In Denmark, early retirement is called efterløn and there are some requirements to be met such as contributing to the labor market for at least 20 years. Early and normal retirement ages vary according to the date of birth of the person filing for retirement.

2 In France, the retirement age was 60, with full pension entitlement at 65; in 2010 this was extended to 62 and 67 respectively, increasing progressively over the following eight years.

3 In Latvia, the retirement age depends on the date of birth of the person filing for retirement.

4 In Spain it was ruled that the retirement age was to increase from 65 to 67 progressively from 2013 to 2027.

5 In the United States, while the normal retirement age for Social Security, or Old Age Survivors Insurance (OASI) was age 65 to receive unreduced benefits, it is gradually increasing to age 67 by 2027. Public servants are often not covered by Social Security but have their own pension programs. Police officers in the United States may typically retire at half pay after 20 years of service, or three-quarter pay after 30 years, allowing retirement from the early forties. Military members of the US Armed Forces may elect to retire after 20 years of active duty. (See also: military retirement pay and military pension.)

Iranian age of retirement was increased much in 2022 and 2023 to 42 years of work insurance payment record to avoid government social security bankruptcy.

Data sets Recent advances in data collection have vastly improved the ability to understand important relationships between retirement and factors such as health, wealth, employment characteristics and family dynamics, among others. The most prominent study for examining retirement behavior in the United States is the ongoing Health and Retirement Study (HRS), first fielded in 1992. The HRS is a nationally representative longitudinal survey of adults in the U.S. ages 51+, conducted every two years, and contains a wealth of information on such topics as labor force participation (e.g., current employment, job history, retirement plans, industry/occupation, pensions, disability), health (e.g., health status and history, health and life insurance, cognition), financial variables (e.g., assets and income, housing, net worth, wills, consumption and savings), family characteristics (e.g., family structure, transfers, parent/child/grandchild/sibling information) and a host of other topics (e.g., expectations, expenses, internet use, risk taking, psychosocial, time use).

2002 and 2004 saw the introductions of the English Longitudinal Study of Ageing (ELSA) and the Survey of Health, Ageing and Retirement in Europe (SHARE), which includes respondents from 14 continental European countries plus Israel. These surveys were closely modeled after the HRS in the sample frame, design and content. A number of other countries (e.g., Japan, South Korea) also now field HRS-like surveys, and others (e.g., China, India) are currently fielding pilot studies. These data sets have expanded the ability of researchers to examine questions about retirement behavior by adding a cross-national perspective.

Study First wave Eligibility age Representative year/last wave Sample size: households Sample size: individuals Health and Retirement Study (HRS)199251+200612,28818,469 Mexican Health and Aging Study (MHAS)200150+20038,61413,497 English Longitudinal Study of Ageing (ELSA) 200250+20066,4849,718 Survey of Health, Ageing and Retirement in Europe (SHARE)200450+200622,25532,442 Korean Longitudinal Study of Aging (KLoSA)200645+20066,17110,254 Japanese Health and Retirement Study (JHRS)200745–752007Est. 10,000 WHO Study on Global Ageing and Adult Health (SAGE)200750+/18–492007Est. 5,000/1,000 Chinese Health and Retirement Study (CHARLS)pilot 200845+2008Est. 1,500Est. 2,700 Longitudinal Aging Study in India (LASI)pilot 200945+2009Est. 2,000 Notes: MHAS discontinued in 2003; ELSA numbers exclude institutionalized (nursing homes). Source: Borsch-Supan et al., eds. (November 2008). Health, Ageing and Retirement in Europe (2004–2007): Starting the Longitudinal Dimension.

Factors affecting retirement decisions

Many factors affect people's retirement decisions. Retirement funding education is a big factor that affects the success of an individual's retirement experience. Social Security plays an important role because most individuals solely rely on Social Security as their only retirement option, when Social Security's trust funds are expected to be depleted by 2034. Knowledge affects an individual's retirement decisions by simply finding more reliable retirement options such as Individual Retirement Accounts or Employer-Sponsored Plans. In countries around the world, people are much more likely to retire at the early and normal retirement ages of the public pension system (e.g., ages 62 and 65 in the U.S.).Gruber, Jonathan and David Wise, eds. (1999). Social Security and Retirement around the World. University of Chicago Press. This pattern cannot be explained by different financial incentives to retire at these ages since typically retirement benefits at these ages are approximately actuarially fair; that is, the present value of lifetime pension benefits (pension wealth) conditional on retiring at age a is approximately the same as pension wealth conditional on retiring one year later at age a+1.Gustman, Alan and Thomas Steinmeier (2003). "Retirement Effects of Proposals by the President's Commission to Strengthen Social Security." NBER Working Paper No. 10030 Nevertheless, a large literature has found that individuals respond significantly to financial incentives relating to retirement (e.g., to discontinuities stemming from the Social Security earnings test or the tax system).Feldstein, Martin and Jeffrey B. Liebman (2002). "Social Security," in Handbook of Public Economics, Vol. 4, Elsevier PressFriedberg, Leora (2000). "The Labor Supply Effects of the Social Security Earnings Test." Review of Economics and Statistics, Vol. 82, No. 1, pp. 48–63Liebman, Jeffrey B., Erzo F.P. Luttmer and David G. Seif (2008). "Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities." NBER Working Paper No. 14540

Greater wealth tends to lead to earlier retirement since wealthier individuals can essentially "purchase" additional leisure. Generally, the effect of wealth on retirement is difficult to estimate empirically since observing greater wealth at older ages may be the result of increased saving over the working life in anticipation of earlier retirement. However, many economists have found creative ways to estimate wealth effects on retirement and typically find that they are small. For example, one paper exploits the receipt of an inheritance to measure the effect of wealth shocks on retirement using data from the HRS.Brown, Jeffrey R., Courtney Coile and Scott J. Weisbenner (2006). "The Effect of Inheritance Receipt on Retirement." NBER Working Paper No. 12386 The authors find that receiving an inheritance increases the probability of retiring earlier than expected by 4.4 percentage points, or 12 percent relative to the baseline retirement rate, over an eight-year period.