Retirement Decision and Quasi-hyperbolic Discounting

This paper examines how quasi-hyperbolic discounting affects the retirement decision. As in Salanié and Treich (2006), the two impacts of the present bias, i.e. the self-control effect and the discounting effect, are disentangled. The main results are that the self-control effect leads to early retirement while the discounting effect leads to later retirement. The impact of quasi-hyperbolic discounting on the retirement age is therefore indeterminate even though the simulation results show that the discounting effect generally dominates the self-control effect. In addition, if the agent is able to commit his retirement choice, he will avoid early retirement because the self-control effect does not play but his sophistication is not sufficient to attenuate early retirement.