Misperception of the retirement benefit and retirement decision making

Several studies show a lack of knowledge about pension and social security benefits among the population in many countries. Other studies show that the knowledge of these benefits become more precise for people close to their retirement. This paper investigates how this misperception of the pension benefit and this progressive learning influence the retirement and consumption decisions. The main result is that the impact of the misperception on these outcomes may be ambiguous what could explain why empirical studies only find a limited impact of the misperception of the retirement benefit on these outcomes. In addition, this misperception may explain simultaneously early retirement and the retirement-consumption puzzle, i.e. the unexplained downward shift in the consumption path around the retirement age.