Theoretical Aspects of Retirement Decisions

Paper presents a survey of five different approaches to retirement decision analysis. Simple life cycle labour supply model leads to a classical optimization problem of choice between work and leisure, but it is highly limited in explaining retirement decision as a static approach. Comparative static version of this model enables the determination of income, wealth and social security on retirement decisions, but does not include neither the preference parameters of the individual or the expected value of future income flows. Merely the first problem can be solved by the reservation wage approach, but both problems are soluble by implementing a dynamic programming model. As an alternative to the latter, an option value approach is also discussed, which highly decreases the complexity, but does not lose a lot of reliability of the dynamic programming model.