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TRAJECTORIES TO RETIREMENT: THE ROLE OF PERSONAL TRAITS, ATTITUDES AND EXPECTATIONS

Péter Hudomiet, Andrew Parker and Susann Rohwedder RAND

SIEPR Conference on Working Longer and Retirement

October 8, 2015

Funded by the Alfred P. Sloan Foundation

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Widespread “non-traditional” retirement

  N PercentFull time -> retirement 972 37.6Gradual retirement 360 13.9Unretirement 435 16.8Full time -> part time work 358 13.8Always full time work 324 12.5Unemployment -> retirement 47 1.8Disability -> retirement 91 3.5Total 2587 100.0

Labor histories of the 56-57 year old full time workers in HRS, followed for 14 years:

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Large literature on timing of retirement

Role of incentives (Social Security, private pensions, health insurance) Gustmant and Stenimeier (1986, 1994, 2000, 2004), Stock and Wise (1990),

Krueger and Pischke (1992), Gruber and Wise (1999, 2004), Blau and Gilleskie (2001, 2006, 2008), Nyce et al. (2013),

Role of health Blau and Gilleskie (2001), McGarry (2004), French (2005), Burkhauser and

Cawley (2006), Bound et al. (2010) Role of wealth

Krueger and Pischke (1992), Imbens, Rubin, and Sacerdote (2001), Sevak (2001), Coronado and Perozek (2003), Brown et al. (2010)

Role of job characteristics Hurd and McGarry (1993), Blekesaune and Solem (2005), Angrisani et al. (2013)

Relatively little on psychological factors Barnes-Farrell (2003), Angrisani et al. (2013), McGonagle et al. (2015)

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Literature on the role of psychological factors in economic behavior

Cognition on economic outcomes Schooling, job success, welfare status, child neglect,

poverty, crimes, savings, etc. Jensen (1998), Banks and Oldfield (2007); McArdle,

Smith and Willis (2009), Christelis, Jappelli and Padula (2010); Grinblatt, Keloharju and Linnainmaa (2011)

Personality on economic outcomes Mortality, divorce, occupations, smoking, health,

wealth, earnings, etc. Roberts et al. (2007), Smith (2006), Hampson et al.

(2007), Hurd et al. (2012)

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How might psychological factors impact retirement trajectories?

Preference examples • Being with

family• Being productive• Being around

others• Traveling• Various hobbies

Life shock example• Some take

better care of themselves

• Better health, longer retirement

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How might psychological factors impact retirement trajectories?

Affecting economic opportunities Some might want to…(preferences)

keep career job reduce hours on career job find a bridge-job

Who can do that? people with good abilities?

maybe relevant in career jobs? people with the right personalities?

maybe relevant in finding bridge-jobs? or holding on to a career job?

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In summary:Psychological factors may affect retirement by …

Making certain workers WANT to work longer

Making employers want to KEEP certain workers

Making employers want to HIRE certain workers into bridge jobs

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Why study effect of psychological factors on retirement trajectories?

Pre-determined variables Cognitive abilities & personality relatively stable

characteristics Rank-preserving decline in fluid intelligence from

early adulthood Hard to influence by policy

If psychological factors important predictors, still of interest to policy as it may illuminate: Who likely responds to incentives or other policy levers Who would benefit from what type of additional support

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In this paper 11 waves from the Health and Retirement

Study Individuals working full-time at age 56,

follow for 14 years Construct realized retirement trajectories Relate realized and expected retirement

trajectories to cognitive ability and personality

Investigate mechanisms through which psychological factors shape retirement trajectories

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Most closely related papers Maestas (2010)

“Unretirement” is wide-spread and largely expected Many go through non-traditional retirement

trajectories. Angrisani et al. (2013)

Analyze 2-year labor market transitions Impact of personality traits and job characteristics

McGonagle et al. (2015) Analyze perceived work ability and some labor force

outcomes Effect of detailed psychological and work factors

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HRS DATA: Analytic sample 56-57 year old between 1992-1998 Full time workers at baseline Follow them for 14 years until age 70-71

Only use values from these 14-year windows

Age of interviewees by cohort and wave: Cohort 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20121935-36 56-57 58-59 60-61 62-63 64-65 66-67 68-69 70-711937-38 56-57 58-59 60-61 62-63 64-65 66-67 68-69 70-711939-40 56-57 58-59 60-61 62-63 64-65 66-67 68-69 70-711941-42 56-57 58-59 60-61 62-63 64-65 66-67 68-69 70-71

HRS wave

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Constructing Retirement Trajectories

Examples of retirement trajectories:

Step 1: Assign labor market status for each person-year observations

Step 2: Fill in missings using job start, job end, and retirement dates

Step 3:Translate into retirement trajectories 1. FFFFRR

RR2. FFPP.RR

R3. F...RRPP

4. FPPRRRRE

5. FPPPPPPPF

6. FF..FFFFF

  Status Code

Working Works full-time F Works part-time P

Not working 

Retired R Unemployed U Disabled D Dead E Other not in labor force O Missing .

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Realized retirement trajectories Based on info between age 56 and 70

  Retirement trajectory Examples

1 Full time work to retirement  

2 Gradual retirement FFFPPPRR3 Unretirement FFFRRRPP

4 Full-time to part-time work

5 Always full time

6 Retired after unemployment FFPURRRR

7 Retired after disability FFFDRRRR8 Deceased by age 70 FFRRRREE9 Left the sample

10 Other uncategorized cases  

12.3%

12.6% 3.2%

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Less than 40% move from full-time to retirement,About 40% move to part-time

% Full time work to retirement 37.7 Gradual retirement 13.9 Unretirement 16.8 Full-time to part-time work 13.8 Always full time work 12.5 Retired after unemployment 1.8 Retired after disability 3.5 Total 100.0

Distribution of retirement trajectories, N=2,586

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Trends in Retirement TrajectoriesAdd timing of retirement (early, middle, late)Look for trends across cohorts

Find trends towards working longer:Most notable increases in fraction …- Working full-time past age 65, then retire- Working full-time, then move to part-time

Control for cohort effects

Little change in the fraction of “non-traditional” retirement

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Effect of Psychological Factors Cognitive abilities and Big 5 personality

traits Most widely used psychological factors We intent to expand the list of measures

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Measure of Cognitive Ability 27 point score of working and episodic

memory Closely linked to fluid intelligence (Del Missier et

al., 2013) Sum of immediate and delayed word recall, serial

7 subtraction and backward counting

Methodology Age-adjusted person specific mean values, using

responses between age 50 and 61 Then we standardize

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Big 5 Personality Traits Conscientiousness

willingness to comply with conventional rules, norms, and standards Neuroticism

experiencing the world as threatening and beyond control Openness to experience

needing intellectual stimulation, change, and variety Extraversion

needing attention and social interaction Agreeableness

needing pleasant and harmonious relations with others

Methodology 26 questions asked every second wave since 2006 Use person-specific means (typically 2 values) Then we standardize

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Identification of Effects of Interest Psychological factors predetermined and

time-invariant Assume that psychological factors

exogenous to all other controls Regression of retirement trajectories on …

psychological factors only will show their total effect

psychological factors plus other controls will show relevant mechanisms and

remaining effect of psych factors

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Outline of regression analysis

vector of psychological factors

set of controls Demographics (gender, race, education) Health indicators (self-reported at ages 56 and 66;

subjective probability of living to age 75) Labor market variables at the main job at age 56

(occupations; DB pensions, DC pensions, health insurance)

Marital status (being single at ages 56 and 66) Wealth (log total household wealth)

𝒚 𝒊=𝜷𝟎+𝜷𝒑𝒑𝒊+𝜷𝒙 𝒙 𝒊+𝒖𝒊

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OLS regressions of working past age 65:High cognition, extraversion predict working longerAgreeableness promote retiring earlier

  [1] [2] [3] [4] [5] [6]Cognitive ability 0.046 0.042 0.036 0.034 0.035 0.037Neuroticism -0.002 0.003 0.014 0.018 0.018 0.018Extraversion 0.068 0.066 0.057 0.053 0.054 0.054Agreeableness -0.058 -0.041 -0.035 -0.033 -0.033 -0.035Conscientiousness 0.009 0.011 0.005 0.015 0.015 0.014Openness to experience 0.020 0.005 0.003 -0.005 -0.007 -0.004Cohort dummies Demographics Health variables Labor market variables Marital status Household wealth R squared 0.030 0.038 0.050 0.094 0.095 0.098Explained cognition 7.9% 20.7% 24.6% 23.1% 18.5%Explained extraversion 1.6% 16.1% 22.2% 20.1% 19.9%Explained agreeableness   30.4% 40.0% 43.9% 43.2% 39.8%

N=2,376; bold = stat. significant at 5%

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OLS: Working full-time past age 65Cognition systematic predictor (+), agreeableness in [1]Extraversion no longer significant

  [1] [2] [3] [4] [5] [6]Cognitive ability 0.029 0.035 0.032 0.032 0.032 0.034Neuroticism -0.008 -0.004 0.001 0.006 0.005 0.005Extraversion 0.025 0.022 0.018 0.015 0.015 0.015Agreeableness -0.042 -0.020 -0.018 -0.016 -0.016 -0.020Conscientiousness 0.002 0.004 0.002 0.010 0.010 0.011Openness to experience 0.026 0.015 0.011 0.003 0.003 0.005

Cohort dummies Demographics Health variables Labor market variables Marital status Household wealth R squared 0.017 0.032 0.038 0.088 0.088 0.091N=2,376; bold = stat. significant at 5%

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Multinomial logit of retirement trajectories, left out category: full retirement

  Gradual retire Unretire Always

full-timeFull to

part-time Other

Cognitive ability 0.030 0.125 0.308 0.221 0.080Neuroticism -0.050 0.130 0.004 0.063 0.090Extraversion 0.080 0.231 0.263 0.320 0.110Agreeableness -0.122 -0.221 -0.112 -0.193 0.096Conscientiousness 0.029 -0.023 0.086 0.051 -0.129Openness to experience -0.029 0.071 0.015 -0.073 0.131

Cohort dummies Demographics Health variables Labor market variables Marital status Household wealth N=2,477; bold = stat. significant at 5%

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Retirement Expectations

Look at several measures.

Overall strongly predictive of realized retirement trajectories, but some discrepancies.

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Example:Probability of working full-time past age 65 (P65), measured at baseline

Retirement Expectations

Do psychological factors explain retirement expectations?

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OLS of Expectations: work full-time past age 65Cognition and openness significant and positive

  [1] [2] [3] [4] [5] [6]Cognitive ability 0.029 0.019 0.018 0.020 0.022 0.025Neuroticism -0.004 -0.004 -0.001 0.003 0.004 0.004Extraversion -0.015 -0.013 -0.016 -0.021 -0.016 -0.015Agreeableness -0.018 -0.009 -0.008 -0.002 -0.003 -0.008Conscientiousness -0.018 -0.017 -0.016 -0.007 -0.007 -0.004Openness to experience 0.054 0.044 0.038 0.028 0.025 0.028

Cohort dummies Demographics Health variables Labor market variables Marital status Household wealth R squared 0.025 0.038 0.058 0.147 0.163 0.174N=2,325; bold = stat. significant at 5%

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Psychological Factors predict Retirement Expectations and Realizations High cognitive ability

predicts working longer in both expectations and realizations

Extraversion predicts working longer (part-time) in realizations, not expectations

Agreeableness predicts retiring earlier in realizations, not expectations.

Openness to Experiencepredicts working longer in expectation, not realization

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Implications Psychological factors are hard to influence by

policy Because predetermined But they reveal important channels look at mechanisms May inform where policies are most effective

Retirement attitudes can be influenced Information campaigns Incentives

Part-time jobs an integral part of working longer Extraverts are successful in getting them How can we help introverts?

Do they even want part-time jobs? Do they want different types of jobs? Can job matching/job exchanges help?

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What are the mechanisms through which psych. factors affect retirement trajectories?

So far, considering …

Retirement attitudes Job characteristics Health

Psychological factors strongly predict all three.

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Thank you!

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Trends in trajectories: Some evidence for working longer

  Cohort that turned 56 or 57 year old in year…

  1992 1994 1996 1998Full retirement, before age 62 8.0 6.7 6.4 5.2Full retirement, age 62-65 13.0 12.2 11.9 10.4Full retirement, age 66+ 8.3 6.9 8.4 10.6Gradual retirement, before age 65 2.6 3.9 4.9 3.6

Gradual retirement, age 66+ 5.9 6.7 6.1 6.5Unretirement, 1 wave in R 7.5 8.5 8.7 8.6Unretirement, 2+ waves in R 4.3 2.6 4.1 4.2Always full time work 8.4 10.0 7.8 9.9Full-time to part-time work 8.7 9.7 10.3 11.2Retirement after unemployment 1.2 0.9 2.1 1.1Retirement after disability 2.6 2.7 2.4 2.4Total 100.0 100.0 100.0 100.0N 667 617 632 675

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Subjective probabilities line up with realized retirement trajectories

 Probability of working full time

past age 65Full retirement, before age 62 12.1%Full retirement, age 62-65 16.1%Full retirement, age 66+ 33.5%Gradual retirement, bef. age 65 13.2%Gradual retirement, age 66+ 30.7%Unretirement, 1 wave in R 29.8%Unretirement, 2+ waves in R 14.0%Always full time work 50.5%Full to part time work 39.7%Retirement after unemployment 34.0%Retirement after disability 23.8%Total 29.0%

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Mechanism 1: Retirement attitudesCogniti

ve ability

Neurotic

Extravert

Agreeable

Conscienti.

Open to experie

nce

Good things

One can be own boss   +       +One can take it easy + +One can travel +No pressure +Time with spouse +Time with children +One can do hobbies +Do voluntary work       +    

Bad

things

Not productive   +        There is sickness +No income + +Boring + Miss co-workers + +Inflation   +        

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Mechanism 1: Retirement attitudes

Cognitive

abilityNeurot

icExtrav

ertAgreea

bleConscie

nt.Open to experie

nceFelt forced to R   +       +Satisfied with R   +      Reasons for retirement: health issues       + do other things + + be with family       +    

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Mechanism 2: Health

 Fair/Poor

health at age 56

Fair/Poor health at age

66

Subj. probability live to 75

Cognition -0.018 -0.031 0.013Neuroticism 0.039 0.056 -0.024Extraversion -0.035 -0.056 0.019Agreeableness 0.027 0.031 -0.009

Conscientiousness -0.015 -0.051 0.004

Openness to experience 0.005 0.019 0.027

Cohort dummies Demographics R squared 0.087 0.126 0.095N = 2,376; bold = stat. significant at 5%

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Mechanism 3: Job characteristics

  N %1-19 hours 179 42.020 hours 51 11.921-34 hours 81 18.935-40 hours 67 15.641+ hours 50 11.7

Total 427100.

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Distribution of work hours in jobs after unretirement:• 73 % are part time jobsOverall (in the entire sample)• 40% of people spent time in part-time jobs

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Mechanism 3: Job characteristics

Distribution of occupations among those who take part-time jobs• N = 1,142• Large inflow into service sector (and sales, transportation)• Large outflow from management, production

  %  Baseline full-time

jobNew part-time

jobManagement and support 18.8 12.5Professional occupations 20.0 18.7Sales 12.2 14.1Office 13.7 14.0Services 10.4 16.9Mechanical and production 12.1 7.5Transport, material moving 7.4 9.4Other 5.4 7.0Total 100.0 100.0

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Mechanism 3: Job characteristicsWe look at # of job changes (assuming no return after job-loss)

• Reducing hours is hard in career jobs• Many people experience more than one job change

  Number of job changes

  0 1 2+missin

g TotalFull retirement 82.8 11.0 5.2 1.1 100.0Gradual retirement 37.4 41.4 20.1 1.1 100.0Unretirement 0.0 58.2 35.9 5.9 100.0Always full time work 54.8 20.1 14.5 10.6 100.0Full-time to part-time work 37.8 22.1 31.0 9.1 100.0Retirement after unemployment 50.9 23.6 25.5 0.0 100.0Retirement after disability 88.1 9.5 1.8 0.7 100.0Average 52.4 26.0 17.4 4.2 100.0N=2,564