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Planning Paper I
Toward Informed Decision-Making On Retirement
Policy: A Portfolio Of Studies Related To The Retirement Decision
pages 17-18

III. METHODOLOGICAL ISSUES AND SUBSTANTIVE APPLICATIONS
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The goals emerging from this portfolio (see p. 6-7) are ambitious
ones: to improve forecasts of retirement and related trends, and
to evaluate options for influnecing when people choose to retire.
But what problems need to be solved to improve forecasts, and
what options should be evaluated? This section considers these
two questions. In addition, it can be applied to help resolve
issues in each of the four substantive areas corresponding to
federal objectives for the retired elderly.

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Forecasting the Retirement Decision: What Problems Should Be
Addressed?
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In our review of the literature on retirement, we identified over
50 factors that appear to influence the retirement decision.
These factors can be organized into three categories. The first
consists of government programs such as social security, the
personal income tax, and various regulations governing employer
practices. The second category is comprised of individual-level
factors, such as demographic and family-related characteristics,
private pension coverage and other financial matters, health, and
attitudes toward work and retirement. Finally, there are factors
related to the employer and the market place, such as the
employer's size and industry, type of pension plan provided,
policies about retaining older workers, and concerns about
productivity, costs, and upward mobility for younger employees.
Also included in this last category are macro-economic conditions
such as inflation and unemployment. Research about the effect of
these factors on the retirement decision is summarized in
Appendix B.

What is the importance of these factors (and the retirement
decision in general) in making predictions about retirement
trends, the needs and status of retirement systems, and the like?
As described earlier (page 3), the retirement decision figures
most heavily in long-range forecasts, since these are highly
sensitive to shifts in the demographic characteristics of the
population, whereas short-term forecasts, in contrast, are most
sensitive to economic changes. Long-range forecasting models
tend to be micro-simulations, while the short-range ones are
macro-economic or actuarial in nature. (Specif examples of all
three types of models are provided in Appendix C).

One example of how the factors influencing the retirement
decision are typically handled in these microeconomic simulations
is seen in the DYNASIM 2 model developed by the Urban Institute.
From existing survey data (in this case, the Longitudinal
Retirement History Survey), a regression anaalysis is done to
model the extent to which factors such as demographic
characteristics, health, and financial status have affected
current retirement decisions. This model is then used in
conjunction with other models which were developed to exlain or
predict employment patterns, occupational and demographic
changes, and pension coverage and benefits. The final set of
models, DYNASIM, is then applied to a new sample of individuals
to forecast interatively annual changes, such as in the decision
to withdraw from the labor force.