Subjective experience of income

Doctoral thesis: Retirement route and the standard of living in the country in which the pensioner lives affects the subjective perception of income adequacy

When the working aged retire, their perception of their income weakens. When the unemployed retire, their perception of their income improves. Pensioners who live in countries with a high standard of living experience lower levels of income sufficiency.

As a rule, retirement weakens the perception of income adequacy, but the effect is not as dramatic as is generally thought.

A European comparison by Liisa-Maria Palomäki, who will defend her doctoral thesis at the University of Turku on 20 June, shows that income has a relatively minor effect on pensioners’ experienced economic wellbeing. The retirement route plays a higher role in this context.

“Those who retired directly from working life perceive that their livelihood weakened at retirement while those who retired from other statuses felt that their financial situation improved considerably,” Palomäki states.

Palomäki noted in her doctoral thesis that, for the unemployed and those in other statuses, retirement meant a steady and secure income. It is possible that the elderly have different expectations of and demands on their retirement income than of their wages or unemployment allowance.

Higher consumption expectations in countries with a high standard of living

The average income level of pensioners, which depicts the general standard of living of a country, plays a role also in terms of the perceived income level. Pensioners in countries with a high standard of living felt that they could make ends meet less often than did those who live in countries with a lower standard of living.

“This difference may be linked to the expectations on consumption created by different standards of living,” Palomäki estimates.

In her study, Palomäki found that pensioners evaluate their income in relation to other pensioners rather than to the population as a whole or to the working-age population. This change of target group for the comparison occurs after retirement. Income distribution within a country does not have any bearing on pensioners’ evaluation of income adequacy.

Retirees more content with their income than the rest of the population

Statistics show that pensioners in Europe are financially more satisfied than the other population groups.

“This is a contradiction, considering their generally lower-than-average income level. Researchers call this phenomenon the satisfaction paradox,” Palomäki explains.

According to Palomäki, the other financial resources that pensioners have may partly explain the paradox, although it does not apply to the low-income and the oldest pensioners. The subjective evaluation of economic wellbeing is a complex phenomenon, in which income is only one part of the whole.

The effect of retirement route and other factors on perceived income

The study is based on the Welfare and Services Survey in Finland (National Institute for Health and Welfare) 2004, 2006 and 2009, as well as the European Union Statistics on Income and Living Conditions (EU-SILC) from the period 2005-2013.

Doctoral defence at the University of Turku on 20 June

Liisa-Maria Palomäki (M.Sc.) will defend her doctoral thesis Pensioners’ Subjective Well-being in European Countries: Comparisons behind the Income Satisfaction Paradox at the University of Turku on Wednesday, 20 June 2018 at 12 noon (University of Turku, Arc1 auditorium, Arcanuminkuja 4, Turku). The defence will be in Finnish.

Publication: Palomäki’s defence is also published by the Finnish Centre for Pensions (Studies 04/2018).

More information: Liisa-Maria Palomäki, Researcher, phone +358 29 411 2150, liisa-maria.palomaki(at)