The effects of retirement on physical and mental health outcomes.

• Author: Dave, Dhaval
• Position: Table

1. Introduction

   Despite rising life expectancy, the average age at retirement has been declining over the past four decades. Social Security data indicate that the retirement age for men declined from 68.5 to 62.6 years, and that for women declined from 67.9 to 62.5 years (Gendell 2001). (1) In a recent study, Gruber and Wise (2005) note that many countries have benefit structures that discourage work by lowering lifetime benefits to people who work longer. There are strong incentives to retire built into the U.S. Social Security system as well as many private pensions (Quadagno and Quinn 1997). With an aging population retiring earlier and an unfunded liability facing both Social Security and Medicare, policy makers have pressed for several reforms including an increase in the retirement age. (2)

   Whether early retirement is individually or socially optimal depends on how retirement affects subsequent health status, among other things. While numerous studies have examined the effects of changes in health on retirement behavior, research on how retirement impacts health status has been sparse. Using seven longitudinal waves of the Health and Retirement Study (HRS), spanning 1992 through 2005, the objective of this study is to analyze the effects of full retirement on outcomes related to physical and mental health. We are careful in noting that the effect we are analyzing is not that of retirement per se, but rather the change in environment that encompasses retirement, leading an individual to invest more or less in their health. While we distinguish voluntary versus involuntary retirement, the behavioral framework suggests that even if retirement is voluntary, individual investments in health may respond to changes in incentives post-retirement. If retirement improves health outcomes, then evaluation of policies that prolong retirement should account for the effect on health.

   Results indicate that retirement has adverse health effects for the average individual. Specifically, complete retirement leads to a 5-14% increase in difficulties associated with mobility and daily activities, 4-6% increase in illness conditions, and 6-9% decline in mental health, over an average post-retirement period of six years. (3) Further tests suggest that the effects tend to operate through lifestyle changes including declines in physical activity and social interactions. The adverse health effects are mitigated if the individual is married and has social support, continues to engage in physical activity post-retirement, or continues to work part-time upon retirement. Some evidence also suggests that the adverse effects of retirement on health may be larger in the event of involuntary retirement.

2. Relevant Studies

   The decision to retire is affected by numerous factors, including availability of health insurance, Social Security eligibility, financial resources, and spousal interdependence. Several studies also point to health status as a significant determinant. Workers in poor health--those who suffer from activity limitations and chronic health conditions--are found to retire earlier than those who are healthy (Belgrave, Haug, and Gomez-Bellenge 1987). Dwyer and Mitchell (1999), using data from the HRS, find that health problems influence retirement behavior more strongly than economic factors. Correcting for the potential endogeneity of self-rated health due to "justification bias," men in poor overall health expect to retire one to two years earlier. Similarly, McGarry (2004) finds that those in poor health are less likely to continue working than those in good health. Using data from the HRS, she notes that changes in retirement expectations are driven to a much greater degree by changes in health than by changes in income or wealth. Ettner, Frank, and Kessler (1997) also indicate that psychiatric disorders significantly reduce employment among both genders. Several other studies similarly show that poor health motivates early retirement, though the relative impact of health versus other factors is debated. (4)

   In contrast, very few studies have examined the impact in the other direction--that is, how retirement affects subsequent health. This question takes on added relevance given the shifting trends in labor force attachment, aging of the population, and growth in health care expenditures. Szinovacz and Davey (2004) find that depressive symptoms increase for women post-retirement and are reinforced by the presence of a spouse with functional limitations. A recent Whitehall II longitudinal study of civil servants by Mein et al. (2003) compared 392 retired individuals with 618 working participants at follow-up to determine if retirement at age 60 is associated with changes in mental and physical health. Their results indicate that mental health deteriorated among those continuing to work; whereas, physical functioning deteriorated for both workers and retirees.

   A Kaiser Permanente study of members of a health maintenance organization (ages 60-66) compared mental health and other health behaviors of those who retired with those who did not (Midanik et al. 1995). Controlling for age, gender, marital status, and education, retired members were more likely to have lower stress levels and engage in regular exercise. No differences were found between the groups on self-reported mental health status, coping, depression, smoking, and alcohol consumption.

   A follow-up study on 6257 active municipal employees in Finland found an increase in musculoskeletal and cardiovascular diseases among retired men (Tuomi et al. 1991). Ostberg and Samuelsson (1994), on the other hand, find positive effects of retirement on health, as measured by blood pressure, musculoskeletal diseases, psychiatric symptoms, and physician visits. Salokangas and Joukamaa (1991) find mental health improvements but no clear effect on physical health in a study of Finnish individuals between the ages of 62 and 66 years. Bosse et al. (1987) examine psychological symptoms in a sample of 1513 older men. Controlling for physical health status, models indicate that retirees reported more psychological symptoms than workers. The role of family income (a correlate of retirement) as a determinant of good physical and mental health is underscored in Ettner (1996). Using data from the National Survey of Families and Households, the Survey of Income and Program Participation, and the National Health Interview Survey, instrumental variables estimates indicate that income is significantly related to several measures of physical health in addition to measures of depressive symptoms.

   While these studies highlight important aspects of the interaction between retirement and health, there is no consensus, and the studies are also limited in several respects. Many use self-reported subjective evaluation of health and are based on small selected samples, which limits their external validity. Most of the studies are also based on individuals in other countries, which have substantially different norms, labor markets, and economic incentives embedded in their pension systems relative to the United States. Several studies employ a simple cross-sectional comparison between workers and retirees and ignore the heterogeneity between the treatment and control. Data limitations also preclude an extensive set of controls, and many do not account for changes in income or assets post-retirement. Most importantly, none of these studies account for biases due to endogeneity.

   The present study exploits seven longitudinal waves of a large-scale population survey of older adults in the United States. Diverse health measures, including self-rated health and objective functional and illness indicators, are used as the dependent outcomes. The HRS data also allow for a rich set of controls, the exclusion of which may have biased other studies. Panel data methodologies and various specification checks are used to overcome unobserved heterogeneity and endogeneity and disentangle the causal effect of retirement on subsequent health.

3. Analytical Framework

   The objective of this study is to assess the extent to which complete retirement impacts health outcomes. This question can be framed within the human capital model for the demand for health (Grossman 1972). Grossman combines the household production model of consumer behavior with the theory of human capital investment to analyze an individual's demand for health capital. In this paradigm, individuals demand health for its consumptive and investment aspects. That is, health capital directly increases utility and also reduces work loss due to illness, consequently increasing healthy time and raising earnings. This implies that upon retirement, the investment motive for investing in health in order to raise productivity and earnings is no longer present. We may therefore expect health to decline after retirement. However, since healthy time enters into the utility function as a consumption good, retirees may invest more in their health post-retirement. In this case, we could expect health to increase after retirement. Specifically, the effect of retirement on health depends on how the retirement transition affects the marginal benefits and costs of health capital, which in turn depends on the life cycle behavior of the marginal value of time and the relative intensity of time versus market inputs in the production of health capital. As the standard theoretical framework does not deliver an unambiguous prediction, the effect of retirement on health status remains an empirical question. (5)

   Other specific mechanisms may further explain how investments in health may be affected subsequent to retirement. Prior studies (Cohen 2004) suggest that social interactions are strongly associated with physical and mental health. With social interactions in the form of external memberships and religious attendance on the decline, social networks formed at work...