Fair Retirement Under Risky Lifetime*

Abstract

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime, and compare the laissez-faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare (ex ante), allowing for a compensation for unequal life expectancies; (2) the maximin on realized lifetime welfare (ex post ), allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption pro…les, as well as raising the retirement age, unlike the ex ante egalitarian optimum. This result is robust to the introduction of unequal life expectancies and unequal productivities. Hence, the postponement of the retirement age can, quite surprisingly, be defended on egalitarian grounds -although the conclusion is reversed when mortality strikes only after retirement.

A theory of reverse retirement

“…But that argument is not convincing: even if no one knows ex ante who will be short-lived and who will be long-lived, it is possible, by reorganizing the life cycle (in terms of consumption profiles and working periods), to minimize the well-being losses for the unlucky short-lived. As shown in Fleurbaey et al (2014Fleurbaey et al ( , 2016, this task can be done by giving up the utilitarian criterion, and by adopting a social criterion that does more justice to the idea of compensating the short-lived.…”

“…In a recent paper, Fleurbaey, Leroux, Pestieau, and Ponthiere (2016) examined how varying the age at retirement could achieve such a compensation. Fleurbaey et al (2016) characterized the optimal retirement age while adopting an ex post egalitarian social welfare criterion, which gives absolute priority to the worst-off in realized terms (who is, in general, the short-lived). Fleurbaey et al (2016) showed that the compensation of the unlucky short-lived pushes toward postponing retirement in comparison with the utilitarian social optimum.…”

“…Although Fleurbaey et al (2016) casts some light on how taking care about the compensation of the short-lived can affect the optimal age at retirement, it remained based on the standard view on retirement. Actually, Fleurbaey et al (2016) assumed the usual life cycle, where individuals work at 1 In France, another édit royal published in 1673 created a pension for officers of the Marine Royale, while pensions were introduced for soldiers and civil servants in, respectively, 1831 and 1853 (see Lavigne, 2013). the young age, and become retiree as they reach some (older) age.…”

“…First, it is related to the literature on retirement and distribution (Cremer & Pestieau, 2011;Schokkaert & Van Parijs, 2003;Schokkaert et al, 2017), which focuses on standard retirement, unlike this paper, which also examines reverse retirement. Second, this paper is also related to the literature on fairness and compensation under unequal lifetime (see Fleurbaey & Ponthiere, 2013;Fleurbaey et al, 2016Fleurbaey et al, , 2014. Fleurbaey et al…”

Reproductive health, fairness, and optimal policies

“…Indeed, in the utilitarian case, health inequalities still prevail and we can be concerned that the utility of the fertile is larger than the utility of the ex-ante infertile. Because heterogeneity is not the result of any actions held by agents but rather due to circumstances (let us refer for instance to pollution exposure), we also explore alternative criteria of social evaluation according to Fleurbaey (2008), Ponthière (2016), or Fleurbaey, Leroux, Pestieau, Ponthière, andZuber (2018). More precisely, we consider an inequality averse social planner who either maximizes the expected long-run well-being of the worst-off (ex-ante egalitarian social criteria) or maximizes the long-run realized well-being of the worst-off (ex-post egalitarian social criteria).…”