Individuals are living longer and spending a larger fraction of their lives in retirement, a trend that puts strain on both private retirement resources and public-sector programs that support retirees. These pressures have prompted policy discussions on taking steps to extend or facilitate longer working lives. An important factor in weighing the costs and benefits of longer working lives is how retirement impacts individual health and well-being. Moreover, how retirement influences health can have secondary fiscal consequences when much of the health spending for retirees is financed by the government.
Our research seeks to determine the causal impact of retirement on health and well-being. On one hand, retirement may cause loneliness or a sedentary lifestyle, leading to declining health and well-being. On the other hand, lack of work responsibilities may reduce stress and leave more time for social activities or health-improving activities like exercise.
The existing evidence on the impact of retirement on health and well-being is mixed. Given that people often choose to retire because of poor health or an adverse life event, many studies have found correlations between poor health and retirement. However, these correlations do not provide evidence about how retirement influences individual health and happiness.
However, the health improvements do not appear immediately. Instead, many health improvements develop four or more years after retirement.
Our empirical approach uses variation in retirement policies at different ages to assess the impact of retirement on health and well-being. For instance, at age 62 individuals become eligible to claim social security retired worker benefits, inducing some individuals to retire. By exploiting variation in eligibility for government programs and private pensions, we estimate the causal impact of retirement on health and well-being both immediately and many years after retirement.
Using the Health and Retirement Study, a rich set of nationally representative data, we found that retirement improves self-reported health and functional limitations. However, the health improvements do not appear immediately. Instead, many health improvements develop four or more years after retirement. This makes sense because it often takes time for investments in health to come to fruition. That is, many health improving activities such as exercise do not make us instantly healthier but generate future health gains if done consistently over time.
Our research also finds that retirement leads to immediate improvements in life satisfaction, and these improvements persist into the long-run. A large body of research finds that people often return back to a set state of happiness after major life events temporarily influence their emotional balance. This line of research suggests that the effect of retirement on life satisfaction may fade out after the initial retirement period. However, our results show that retirement improves happiness and well-being well beyond one’s retirement date.
These improvements in health and life satisfaction do not seem to be driven by increased health-care use, nor do they appear to reduce health-care expenditures. Our study finds retirement is unlikely to have large effects on medical expenses.
Overall, this research suggests that policies to extend working lives may have detrimental consequences on the health and happiness of individuals and are unlikely to have substantial direct effects on health-care spending. These possible negative consequences should be considered when evaluating policies that extend working lives.
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