We thank two referees for their extremely useful comments and suggestions. We are also grateful for comments made by the audiences at the Labour Economics Workshop, Brixen, May 2011; the Bank of Italy-Dondena Workshop on Public Policies, Social Dynamics and Population, July 2011; and the European University Institute, October 2011. This paper uses data from SHARELIFE release 1, as of November 24, 2010 or SHARE release 2.4.0, as of March 17, 2011. The SHARE data collection has been primarily funded by the European Commission through the 5th Framework Programme (project QLK6-CT-2001-00360 in the thematic programme Quality of Life), through the 6th Framework Programme (projects SHARE-I3, RII-CT-2006-062193, COMPARE, CIT5-CT-2005-028857, and SHARELIFE, CIT4-CT-2006-028812) and through the 7th Framework Programme (SHARE-PREP, 211909 and SHARE-LEAP, 227822). Additional funding from the US National Institute on Aging (U01 AG09740-13S2, P01 AG005842, P01 AG08291, P30 AG12815, Y1-AG-4553-01 and OGHA 04-064, IAG BSR06-11, R21 AG025169) as well as from various national sources is gratefully acknowledged (see www.share-project.org for a full list of funding institutions).