Actuarial deductions for early retirement

Abstract This paper studies how the rates of deduction for early retirement have to be determined in pay-as-you-go (PAYG) systems order keep their budget stable. The derivation these deductions requires use a multiperiod intertemporal constraint that involves assumptions about behavior past, present, and future cohorts. In general, it is not possible calculate budget-neutral from single individual who retires before target age—an approach dominates related literature. Only specific cases one can this second but then has adjust discount rate assumption collective retirement. If there only deviating individual, right choice market interest while stationary distribution internal return PAYG system. case, necessary are lower than under standard approach. also true ages fluctuate randomly around distribution. Various long-run developments (e.g., increases life expectancy or permanent changes average age) might cause challenges sustainability pension These developments, however, dealt with by adequate adjustments basic formulas rates.