The Optimal Choice of Delayed Retirement Policy in China

Abstract

We use the overlapping generations model (OLG) to analyze and simulate the optimal retirement decision based on the two criteria of increasing the sustainability of the Social Security Fund (SSF) and improving the welfare of delayed retirees. Our key findings are as follows: (1) Relative to normal retirement, delayed retirement policies are preferable, and voluntary delayed retirement is preferable to passive delayed retirement. (2) Increases in longevity and labor productivity enhance the policy effects of voluntary delayed retirement, while increases in the birth rate promote fund sustainability but weaken its welfare effects. (3) Therefore, when any of these factors increase simultaneously, the sustainability effect is enhanced by superposition, while the birth rate causes the welfare effect to be weakened by superposition. (4) In addition, the result that pensions would crowd out savings and longevity would lead to greater pressure on pension payments does not necessarily hold.