Micro-modeling of retirement in Belgium

The present paper studies the retirement incentives for elderly people in Belgium. We model the
incentive structure built into the various public retirement and early retirement systems. First, we
compute indicators of benefit entitlement such as the social security wealth. Then, we use three
different incentive measures based on the notion of social security wealth. In a third step, we perform an
empirical estimation of micro-econometric probit and option value models. From our exceptionally rich
and broad database, we are able to compute rather accurate measures of all individuals’ pension wealth,
as well as of the implicit tax rates the elderly workers face in case of delayed retirement. We find strong
evidence of social security based financial incentives inducing most workers to retire at the earliest
possible stage. Finally, we use the derived parameter estimates from the probit models to simulate the
responses to various policy changes.