Optimal choice of health and retirement in a life-cycle model

We examine within a life-cycle set-up the simultaneous choice of health care and retirement (together with consumption), when health care contributes to both a reduction in mortality and in morbidity. Health tends to impact on retirement via morbidity, determining the disutility of work, and through longevity, determining the need to accumulate retirement wealth. In contrast, the age of retirement drives health through changes in the value of survival and the value of morbidity reductions. We apply our ∗This research was financed by the European Commission under grant SSH-2007-3.1.01217275 (Long-Run Economic Perspectives of Ageing Societies.) †Austrian Academy of Sciences, Vienna Institute of Demography / Wittgenstein Centre, Wohllebeng. 12-14, A-1040 Vienna, Austria ([email protected]) ‡Institute of Mathematical Methods in Economics (Research Unit on Operations Research and Control Systems), Vienna University of Technology, Argentinierst. 8, A-1040 Vienna, Austria; and Austrian Academy of Sciences, Vienna Insitute of Demography / Wittgenstein Centre ([email protected]) §Institute of Mathematical Methods in Economics (Research Unit on Economics), Vienna University of Technology; and Austrian Academy of Sciences, Vienna Institute of Demography / Wittgenstein Centre ([email protected]) ¶Institute of Mathematical Methods in Economics (Research Unit on Operations Research and Control Systems), Vienna University of Technology; and Austrian Academy of Sciences, Vienna Institute of Demography / Wittgenstein Centre ([email protected])