Causal effects of retirment timing on health and well-being

OBJECTIVE: This article explores the relationship between the timing of retirement and subjective well-being change following that transition. Using longitudinal data from the Health and Retirement Study (HRS), we test four theory-based hypotheses about this relationship—that retirements maximize subjective well-being when they happen earlier, later, anytime, or on-time. METHODS: We examine individuals before and after transitioning to retirement and employ probit models with instrumental variables to estimate the causal effects of retirement timing on subjective health and mood after retirement. RESULTS: The results support the hypothesis that retirements maximize subjective well-being when they happen “on-time”: Both very early and very late retirement transitions are associated with lower subjective well-being after retirement. DISCUSSION: Workers who begin their retirement transition around age 62--Social Security’s early eligibility retirement age--experience the best outcomes in terms of subjective health and mood. This finding offers empirical support for the cultural-institutional theory that emphasizes the role of norms, expectations, and institutional cues. It highlights a tension between the economic gains of working longer and the subjective well-being benefits of retiring at early eligibility age. Raising the retirement ages would probably reduce well-being in the short run, but over time, cultural expectations would likely adjust.