Retiree Health Insurance and the Retirement Plans of College and University Faculty

Abstract

Economists conjecture that employer-provided pensions create an incentive for early retirement, in that employees with such pensions can afford to work fewer years and save less. A similar effect might be present with retiree health insurance (RHI). Relatively few studies of the impact of RHI on retirement and saving decisions have been carried out, however. This article reports on the results of an empirical study, based on a nationwide survey of older university faculty. Its main finding is that the expected age of retirement is not affected by whether or not the faculty member expects to have RHI. This finding may reflect the fact that university faculty tend to retire late, past age 65, at which time they are automatically enrolled in Medicare. The value of RHI is greater when a worker intends to retire well before the age of 65.