Rescaling the Life Cycle - The Effect of a Rising Life Expectancy on Retirement and Old-Age Provision

Francois Peglow, Max Planck Institute for Demographic Research

This paper analyzes the effect of a rising life expectancy on rescaling the life cycle and the related impact on macroeconomic saving and consumption patterns. By introducing the relative retirement span (RRS) as an indicator for life cycle arrangements we are able to analyze the development of the life cycle over time and to compare different country profiles. We also include characteristics of the social security system in order to identify a ‘behavioral effect’ shaping the life cycle. Additionally we estimate the effect of the relative retirement span on the gross domestic savings rate. Based on a cross-sectional panel data set of OECD countries we discover an asymmetric change of the life course. We also find that life cycle arrangements are rather determined by the behavioral effect than by a rising life expectancy. Moreover, we expect to find a macroeconomic response to an increased relative retirement span.