November 2019

IZA DP No. 12744: The Effect of Increasing the Early Retirement Age on Savings Behavior Before Retirement

Stefan Etgeton, Björn Fischer, Han Ye

Facing a reduction in pension generosity, individuals can compensate the loss by working longer or saving more. This paper shows that the impact of changes in pension generosity on saving crucially depends on the possibility of prolonging future employment. Exploiting across cohort variation in expected pension wealth induced by a 3-year lift in early retirement age for women born after 1951 in Germany, we show evidence of a reduction in private savings rate and an increase in leisure consumptions in case of strong responses in future labor earnings.