F23

Individual Income and Remaining Life Expectancy at the Statutory Retirement Age of 65 in the Netherlands

Adriaan Kalwij1, Rob Alessie3, Marike Knoef 2
1Utrecht University, The Netherlands, 2Tilburg University, The Netherlands, 3Groningen University, The Netherlands

This paper quantifies the association between individual income and remaining life expectancy at the statutory retirement age in the Netherlands of 65. For this purpose, we estimate a mortality risk model using a large administrative dataset that covers the 1996–2007 period. Besides age and marital status, the model includes as covariates individual and spouse’s income, as well as a random individual specific effect. It thus allows for dynamic selection based on both observed and unobserved characteristics. In addition it includes dynamic sample selection correction terms for individuals entering the sample after 65, who, having survived to the age of entry, are a selective group. We show these additional controls to be significantly important. Our primary empirical finding is that for both men and women, life expectancy for low-income individuals is about two-and-a-half years less than that for high-income individuals. One economic implication of this finding is that individuals’ internal rate of return from a uniformly priced pension plan is positively associated with income because high-income individuals live, on average, longer than low-income individuals.

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