Economics is a discipline that is obsessed with finding out what affects what. Are unhealthy workers more likely to retire early or does retirement have negative health effects? In both situations, retirees are on average less healthy than workers but the policy implications are very different. If unhealthy workers are more likely to retire early, abolishing early retirement hurts unhealthy workers. If retirement has negative health effects, abolishing early retirement is good for workers. Research shows that the mental health effects of retirement are heterogeneous: there is no single policy that fits all.
Obliged to retire?
The Dutch pension system consists of three pillars: state pensions (called AOW), collective pensions, and individual pensions. The state pension provides benefits of up to 70% of the net minimum wage. It is paid from a certain predefined age onward. Even though there is a possibility for early or late retirement using benefits from the collective pension funds or individual pension funds, the state pension has a fixed age for benefit collection which depends on birth cohort only. In theory, individuals are not obliged to retire at the state pension age but many workers do so, whether they like it or not. Many collective labour agreements state that workers lose their job on the day they reach the state pension age.
To improve the sustainability of the state pension system, the government decided to gradually increase the state pension age. For all individuals born before 1948, the state pension age was 65. For those born in 1948, the state pension age was increased with one month. For later birth cohorts there was a further increase. My birth cohort was supposed to receive AOW from age 67 which also implied retirement from the 67th birthday onward. However, in 2019, Dutch unions negotiated a reduction of my mandatory retirement age from 67 years to 66 years and 4 months.
‘The unions negotiated on my behalf but I was never consulted about whether I wanted to retire 8 months earlier’
'Will retiring boost or deteriorate my health?'
The unions negotiated on my behalf, but I was never consulted about whether I wanted to retire 8 months earlier. I did not want to and now I am worried about my health. Will retiring earlier boost or deteriorate my health? Research findings are not always helpful here. Empirical studies are not conclusive about whether retiring earlier reduces or increases mortality. Some studies find an increase in mortality if retirement is postponed, other studies find a decrease, and other studies find no effect.
To get an idea about possible health effects of retirement, I decided to do some research myself. I used information from the Longitudinal Internet Studies for the Social Sciences panel which is representative for the Dutch population and collected and administered by CentERdata (Tilburg University). I used data collected from 2007 to 2017 with information about retirement status, self-assessed health, and mental health. To establish the causal effect of retirement, I compared the mental health of people slightly younger than the state pension (AOW) retirement age with the mental health of people slightly older than the state pension retirement age. Because of the existing rules, the slightly older people are more likely to be retired than the slightly younger people but otherwise they are very much the same.
The effects of retirement
My main findings are the following: the retirement of a man has quite a few significant health effects on him and his partner. Self-perceived health improves significantly for both the retiree and his partner. Furthermore, mental health and self-assessed health of him and his partner improve. Contrary to the health effects of a man retiring, the retirement of a woman has hardly any effect on the mental health or self-assessed health of herself or her partner. The findings on single men and women are very different. Their health suffers from retirement. From an additional analysis I conclude that retirement increases loneliness among single women and especially among single men.
Because of the heterogeneity in the retirement effects according to gender and marital status, it is difficult to draw uniform policy conclusions. Allowing for more flexibility in retiring would have welfare improving effects. Quite a few people who can afford doing so retire earlier than the state pension age. However, for others the state pension age is the age at which they are forced to retire whether they like it or not. Removing barriers to continue working after the state pension age are welfare-improving. As to me being a partnered man, my research indicates that the health of both me and my wife will benefit from my retirement. Nevertheless, I worry that I may be an outlier for whom things are very different.
