POPULATION AGING, SOCIAL-SECURITY DESIGN, AND EARLY RETIREMENT

The aging of the industrialized countries will dramatically strain their social security systems. In Germany, for example, 100 employed persons now support about 40 elderly, but 85 elderly will have to be sustained by the same number of employed persons in the year 2030. This pressure is exacerbated by the observed trend towards earlier retirement ages. This paper presents cross-national evidence and an option value analysis of the retirement decision to argue that the distortions created by the actuarially unfair design of the social security systems in the United States and particularly in Germany have significantly contributed in this trend. (JEL: H 55, C 50, J 22)