Retirement and the Poverty of the Elderly in Portugal

provided by Research Papers in Economics

Retirement and the Poverty of the Elderly in Portugal

ALBUQUERQUE, Paula; ARCANJO, Manuela; ESCÂRIA, Vrtor; NUNES, Francisco and
PEREIRINHA, José.

ISEG-Technical University of Lisbon, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal

Corresponding-author: Paula Albuquerque ([email protected])

May, 2006

Abstract:

The effect of retirement on economic welfare, indirectly measured by income, has not been
studied widely, namely due to the lack of longitudinal data. A large literature exists about
poverty in old age, mainly based on cross sectional survey data, but usually those studies
are not able to study the transitional effect of retirement on income as they do not observe
the workers who do retire before and after their retirement. The knowledge of this
phenomenon is, however, of crucial relevance given the growing number of elderly people,
the trend towards earlier retirement, and continuing relatively high poverty rates among the
elderly.

This paper analyses the association between transitions into retirement and the probability
of becoming poor, considering different definitions of low income and of retirement,
following what has been proposed in the literature. It is based on longitudinal data from the
European Community Household Panel (ECHP) for Portugal survey waves 1-8 covering
1994-2001. Taking advantage of the longitudinal nature of the data used, we consider how
the process of becoming retired is associated with an increased risk of having a low income,
focusing on changes in the years immediately before and immediately after retirement for
people who retire. The analysis is then focused on a sample of people who do retire during
the analysed period.

The paper starts by presenting evidence comparing low income incidence among retired
people and the rest of the population on each of the waves of ECHP. Afterwards it analyses
some factors associated with the changes in individuals’ income over a number of years
around retirement. The dynamics of household income changes for people who retire are
studied and which personal and household characteristics are associated with a higher risk
of having low income in the years around retirement are explored. Finally, a multivariate
probit model of the probability of entering low income at the time of retirement conditional
on not having a low income before retirement is estimated.

Keywords: Retirement, poverty dynamics, Portugal, old-age social protection, income
mobility

Classification JEL: H55, I32, J14, J26

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