LONGEVITY, RETIREMENT, AND CAPITAL ACCUMULATION IN A RECURSIVE MODEL WITH AN APPLICATION TO MANDATORY RETIREMENT

Abstract

This paper explores how retirement timing, together with life-cycle saving and human capital investment in children, responds to rising longevity in a recursive model with altruistic agents. We find that rising longevity raises the retirement age. If initial life expectancy is not too high, rising longevity also raises human capital investment in children and the saving rate. Through these channels, rising longevity can be conducive to long-run economic growth. A binding mandatory retirement age reduces human capital investment and the growth rate, raises the saving rate, and reduces welfare.