Shocks in Retirement Expectations and Subjective Well-being: Evidence from a Natural Experiment

Raymond Montizaan, Maarten Vendrik
Maastricht University, The Netherlands

This study investigates the impact of a substantial reform of the Dutch pension system on individual well-being of workers nearing retirement age. The reform implies that public sector workers born on January 1, 1950, or later face a substantial reduction in their pension rights while workers born before this threshold date may still retire under the old, more generous rules. We employ a unique matched survey and administrative panel data set comprising male public sector workers born in 1949 and 1950 and find strong and persistent ex ante effects on life and job satisfaction. The impact of the reform on life satisfaction is sizable compared to income effects on well-being. We find that the drop in satisfaction is strongly affected by social comparison with colleagues. Treated workers are less affected by the reform when the size of the treatment group is larger in the organization where they are employed, and they compare their own replacement rate with the average replacement of comparable individuals in their organization. Finally, consistent with the literature on joint retirement among dual-career families, we find that the treatment of their spouse also significantly impacts the well-being of the men in our sample.

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