The financial implications of working longer: An Application of a Micro-Economic Model of Retirement in Belgium

In this paper, the costs and benefits associated with postponing retirement are simulated in a standard simulation model for Belgium, using the approach of Stock and Wise (1990). Unlike earlier microsimulation-based applications of this approach, such as Gruber and Wise (1999, 2004), this model does not take a representative sample as the point of departure, but simulates the costs and benefits of postponing retirement for four fictitious employees, representing male and female white- and blue-collar workers. While confirming conclusions drawn by other authors, this model allows for the separation of specific retirement schemes, and of the effect of different fiscal regimes for those retired and working. It is shown that differences between retirement schemes show up in differences in replacement rates and by whether or not the retirement benefit is a function of career length. Furthermore, advantageous fiscal regulations for the retired have a strong impact on the implicit costs of postponing retirement.