Does Retirement Induced through Social Security Pension Eligibility Influence Subjective Well-being? A Cross-Country Comparison
How does retirement influence subjective well-being? Some studies suggest retirement does not affect subjective well-being or may improve it. Others suggest retirement adversely affects it. This paper aims at advancing our understanding of the effect of retirement on subjective well-being by (1) using longitudinal data to tease out the retirement effect from age and cohort differences; (2) using instrumental variables to address potential reverse causation of subjective well-being on retirement decisions; and (3) conducting cross-country analyses, exploiting differences in eligibility ages for retirement benefits across countries and within countries. We use panel data from the US Health and Retirement Study and the Survey of Health, Ageing, and Retirement in Europe. This allows us to use a quasi-experimental approach where variations in public pension eligibility due to country and cohort specific retirement ages help identify retirement effects. For both the U.S. and Europe we find that retirement is associated with higher levels of depression. However, when we use instrumental variables we find the opposite result. Retirement induced through Social Security pension eligibility is found to have a positive effect, reducing depression symptoms, although only marginally significant for the U.S. when considering the depression indicator. Retirement is not found to have a significant effect on life satisfaction measures for either the U.S. or Europe.
- Consistent with the literature, we find a significant negative correlation between retirement and subjective well-being.
- However, once we control for potential reverse causality by taking an instrumental variables approach, we do not find empirical evidence that retirement induced through Social Security pensions eligibility has a negative impact on subjective well-being.
- Therefore, our results suggest that raising official retirement ages would not have an immediate, negative effect on subjective well-being.
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Paper IDWP 2013-301