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Expectations and Realizations of Work after Retirement

by Nicole Maestas

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This paper analyzes a puzzling aspect of retirement behavior known as “unretirement,” in which retirees appear to reverse their retirement decisions and return to work. Using panel data from the Health and Retirement Study, the author shows that nearly 50 percent of retirees follow a nontraditional retirement path that involves partial retirement or unretirement, and that 26 percent of retirees later unretire. She explores two possible explanations: 1) unretirement transitions are unexpected, resulting from failures in planning or financial shocks; and 2) unretirement transitions are anticipated prior to retirement, reflecting a more complex retirement process. She presents a theoretical model that illustrates how both unplanned and planned unretirement might arise in a life-cycle framework-the former via uncertainty in asset returns and medical expenses, and the latter through a phenomenon she calls “burnout and recovery,” in which individuals systematically burn out on their career jobs, retire, then return to the labor force after a period of recovery. Using data on expectations and realizations of work during retirement, she shows that unretirement was anticipated for the vast majority (82 percent) of those returning to work, and is not a result of financial shocks, poor planning or low wealth accumulation. For the small minority who unexpectedly returned to work, the evidence points to preference shocks-that is, discovering retirement leisure less satisfying than expected. If anything, expectations err on the side of excessive pessimism about retirement rather than unwarranted optimism; this finding complements a growing literature on consumption behavior at retirement which has suggested that realized retirement turns out better than expected for most people.

This paper made possible by the NIA funded RAND Center for the Study of Aging and the NICHD funded RAND Population Research Center.

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