The impact of inheritances on the retirement behavior of older Europeans

The aim of this paper is to study how wealth affects retirement behaviour. I use data from the 2004-2012 Survey of Health, Ageing and Retirement in Europe, covering 10 European countries. Inheritances are used as an exogenous change in wealth to estimate the causal effect of wealth and inheritance receipt on retirement. I apply binary choice models for a sample of persons working in 2004-05 to estimate the effect of inheritance receipt during 2005-2011 on the probability of retirement in 2011-12. By comparing data on expected retirement age at the beginning of the sample period with actual retirement age I am able to control for unobserved factors that might be correlated with wealth and affect retirement decisions. The main findings are: 1. Inheritance receipt is quite common for individuals nearing retirement age (50+). About 20 percent of the sample aged 50 and older in 2011-12 live in households that received at least one inheritance between 2005 and 2011. 2. Inheritance receipt significantly increases the probability of retirement and the effect increases with the size of the inheritance. 3. In contrast to what life-cycle theory suggests I do not find any evidence that expected and unexpected inheritances affect adjustments of planned retirement age differently. These results are important for assessing the effect of policies that induce changes in wealth, such as pension reforms, tax reforms or reforms of social security, on retirement behaviour.