The Effects of Retirement on Physical and Mental Health Outcomes

While numerous studies have examined how health affects retirement, few have analyzed the impact in the reverse direction. Using the Health and Retirement Study (1992–2005), this paper estimates the effects of retirement on indicators of physical and mental health. To account for biases from unobserved selection and endogeneity, panel data methodologies are used, augmented by counterfactual and specification checks. Results indicate that complete retirement leads to a 5–14% increase in difficulties associated with mobility and daily activities, 4–6% increase in illnesses, and 6–9% decline in mental health (evaluated relative to the sample mean). The adverse health effects are mitigated if the individual is married, engages in physical activity, or continues to work part‐time post‐retirement. Evidence also suggests larger adverse health effects in the event of involuntary retirement. Retiring at a later age may lessen or postpone poor health outcomes for older adults, raise well‐being, and reduce health care services utilization.