This article was originally published in the spring 1997 issue of the Expert Witness.
The decision to retire is influenced by several factors including income level, the available pension, company policy, legislation, employment opportunities, the need to help care for family members, health and the status of the spouse. Some interesting Canadian survey data and analysis regarding this last factor can be found in a book entitled The Road to Retirement, by Grant Schellenberg for the Canadian Council on Social Development (1994). A detailed statistical treatment of the issue, using U.S. data, is provided in the working paper Retirement in a Family Context: A Structural Model for Husbands and Wives by Alan Gustman and Thomas Steinmeier (National Bureau of Economic Research: Working Paper #94-4). We provide here a brief summary of the results reported in these studies and their implications for the calculation of lost future income.
Schellenberg listed four particular items which together constituted the spouse’s influence in the decision to retire. They were: the timing of the spouse’s retirement; the spouse’s health; the spouse’s income; and finally, pressure from the spouse to retire. His survey noted, for each item, the percentage of retired men and women who said that issue had been important in their decision to retire. The most notable finding was that for all four items, men were far less influenced by their spouse’s situation than were women. Less than 5 percent of retired men, for example, said that the timing of their spouse’s retirement had influenced their own timing, yet 22 percent of retired women had considered their husband’s situation in making their choice. The three remaining spousal issues were important to about 10 percent of women and an even smaller 2 to 6 percent of men.
An interesting change appeared when the same questions were put to men and women who, unlike the group discussed above, had not yet retired. This sample put a much higher weight on spousal considerations than those who had already left the workforce. Forty-five percent of women said that they expected their spouse’s time of retirement to affect their own, up from 22 percent, while the number for men rose from approximately 3 to 14 percent. The fraction of wives listing their husband’s health and income as important determinants rose even more, to about 40 percent. Similarly, the number of men who listed spousal health rose from 6 to 22 percent, while spousal income was expected to be important by 12 percent, which, while still small, is a significant change from the minuscule 2 percent reported by the retired group. The data quoted clearly reflect, in our view, the much increased importance of women’s income in total family income. One implication is that studies of the factors which determine retirement age will probably underestimate spousal influence, to the extent they are based on older data.
The American study by Gustman and Steinmeier (G & S) was a sophisticated attempt to quantify the effect of one spouses’ retirement decision on the other. In a somewhat striking contradiction of the results given for Canada by Schellenberg, G & S state that “There is some suggestion in the data that the wife’s retirement decision is not strongly influenced by the husband’s, but the husband’s decision is more strongly influenced by the wife’s.” One possible explanation is familiar to those who analyse survey data: Individuals do not necessarily do as they say they will, or (in hindsight) they report reasons for decisions which do not accurately reflect the real choices they made. Hence, while men (in the Canadian survey) might report that their wife’s decision to retire was or will be an insignificant factor in their own decision, the U.S. data, based on actual behavior rather than survey responses, suggests they are influenced, to a statistically meaningful degree, by their wives’ situation. It is perhaps not surprising that men would prefer to say their decision was independent of their wives’ status, if the alternative is to grant that they did not want to be alone at home while their wives continued to work. The authors of the U.S. paper suggest explicitly that perhaps men are unwilling to face housework alone, and they estimate that the effect of “wife being retired” is that husbands then behave as if they were two years older, and are hence more likely to retire themselves. The average change in time of retirement is found in a simulation to be only five months, however.
Another finding of G & S was that when the retirement decisions of couples are treated as jointly determined, a moderate tendency to retire together (or closer than would otherwise be expected) is evident. The alternative to joint determination would be assuming each spouse takes the other’s retirement age as given when determining their own, but this tends to lead to an overestimation of spousal influence.
Finally, we note that, though the tendency to retire at times which are closer together than the couple’s age difference was statistically significant in G & S, this factor is still much less important than the major issues listed at the beginning of this article, such as current income, available pensions, company and government policy and so on. It is these issues which we have historically considered when setting the retirement age in our calculations of lost income. No change in methodology is warranted as yet, though the Canadian survey suggests that spousal influence is increasing and may have to be accounted for in some future cases. If further research suggests that the “spousal effect” is (or will be) likely to produce differences of over a year on average, we can justify changing our assumptions at times. For example, if there is a strong financial incentive for the woman to retire at 58, and her husband would then be 60, we might plausibly assume he would retire immediately, rather than waiting until age 62, if his own income vs. pension calculation was not very age dependent. While this change would be minor for a 30 year old plaintiff (or survivor, in a fatal accident case), it could be quite important for someone in their 50s.
Of course, it would also be interesting (to an economist, at least!) to see if the above-mentioned difference between the opinions expressed in survey responses and the behavior found in real data is resolved.