This paper provides new evidence on how wealth shocks influence retirement behavior. Economic theory generally posits that leisure is a normal good, yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply. We use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement, especially when the inheritance is unexpected. This evidence has important implications for how public policies, such as pension or tax reform, may influence retirement behavior through the wealth effect.

This paper examines two behavioral factors that diminish people's ability to value a lifetime income stream or annuity, drawing on a randomized experiment with about 4,000 adults in a U.S. nationally representative sample. We find that increasing the complexity of the annuity choice reduces respondents' ability to value the annuity, measured by the difference between the sell and buy values they assign to the annuity. When we limit narrow choice bracketing by inducing people to think first about how quickly or slowly to spend down assets in retirement, their ability to value an annuity increases.