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Reward and Punishment Mechanisms of the Flexible Retirement System in China

DOI: 10.4236/aasoci.2018.85022, PP. 366-377

Keywords: Flexible Retirement System, Delayed Retirement, Life-Cycle Theory, Optimal Retirement Age

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Abstract:

This article attempts to understand the reward and punishment mechanisms of the flexible retirement system in China. The life-cycle model is applied in the pay-as-you-go pension system with flexible retirement policy to establish the numerical model of optimal retirement age under the consideration of prolonged life span. The effect of penalty rate for early retirement and incentive rate for delayed retirement on optimal retirement age is studied. Numerical experiments show that appropriate delayed retirement incentive rate incentivises a delayed retirement decision for maximising the total lifetime utility. The optimal retirement age is raised by prolonging lifespan, and the flexible retirement system is an effective means to implement delayed retirement policy.

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