Income trajectories after retirement: the case of Finland

Gustavo De Santis, University of Florence
Irene Ferro, University of Florence
Pekka Martikainen, University of Helsinki

The relationship between retirement and household characteristics is of interest because of the increasing number of older people in all western societies, and also because the transition to retirement is associated with a greater probability of suffering from a substantial reduction in one's standard of living. The Finnish population too has become considerably older in the last century. We use data derived from a set of administrative archives (1987-2003) of the Finnish population, held under the responsibility of Statistics Finland and other register authorities. We "follow" people three years before and three years after retirement, and examine changes in their economic situation, as well as in other dimensions of their lives. In particular our analysis aims at studying if and how income changes in the years after retirement, distinguishing between marginal changes (i.e. statistically significant, but below a given threshold), transitory changes (change is substantial, but does not persist over time) and permanent changes, meaning both substantial and persistent. Changes in family composition are an important explanatory component of income mobility in old age. Namely, subgroups with little or no change in their living mainly have a linear income trajectory. In contrast, older individuals who experienced changes in household composition are more likely to follow ‘Zigzag’ equivalent income trajectories. Results change only marginally with alternative specifications of the equivalence scale.