Hyeran Chung is an Assistant Professor of Economics at the University of Texas at El Paso. Sita Slavov is a Professor at the Schar School of Policy and Government of George Mason University, a Research Associate at the National Bureau of Economic Research, and a nonresident senior fellow at the American Enterprise Institute.
Health is a major driver of retirement. Workers often need to alter retirement plans when faced with an adverse shock to either their own health or their spouse’s health. But the causation runs in both directions: retirement can also influence health through changes in daily routines, stress, and health-related behaviors.
Our new research studies these pathways with the aim of untangling the two-way relationship between health and retirement. The analysis shows that either experiencing a health shock – or being married to someone who experiences a health shock – is associated with an increase in the probability of retiring earlier than anticipated. On the other hand, workers who retire for non-health reasons tend to experience short-term improvements in health following retirement.
Why Health Shocks Matter for Retirement
Health is a key determinant of labor supply later in life. Declining health makes work more demanding, reduces productivity, and increases the value of rest. To examine the impact of health on retirement, we focus on health shocks, defined as sudden declines in self-reported health. These shocks are less likely to be reflected in long-standing retirement plans. Using longitudinal data, we follow individuals from their early fifties through age sixty-five, examining retirement behavior before and after these health events.
We find that individuals who experience a health shock are 40 percent more likely to retire in the subsequent years compared to similar individuals who do not experience a health shock. Individuals who retire following a health shock also tend to retire earlier than planned and to cite health as a reason for leaving the workforce. On the other hand, health shocks are not predictive of retirements that occur as planned, or of retirements for non-health reasons. These patterns suggest that sudden health changes can override existing retirement intentions.
The Role of Spousal Health
Retirement decisions are commonly made at the household level, rather than at the individual level. A spouse’s health may affect household income, out-of-pocket medical spending, caregiving needs, and time allocation, all of which may influence retirement timing.
Our results suggest that when one spouse experiences a health shock, the other spouse is modestly more likely to retire, particularly several years after the initial shock. This delayed response is consistent with caregiving responsibilities that intensify as health conditions persist or worsen.
These results underscore the importance of viewing retirement decisions through a household lens. Focusing solely on an individual’s own health can miss important factors that shape later-life labor supply and retirement.
Does Retirement Improve Health?
A separate question concerns whether retirement itself improves health. Retirement may reduce work-related stress and create time for exercise, medical care, and other health-promoting activities. Evaluating this relationship is complicated by the fact that many retirements occur in response to declining health. To address this issue, we distinguish between retirements that are plausibly unrelated to health shocks and those that are likely health driven. We argue that retirement is plausibly unrelated to health if (1) the worker does not cite health as a factor in the retirement or (2) the worker retires at or after the anticipated retirement age reported upon entry into the survey.
For individuals who retire under these circumstances, retirement is associated with modest improvements in self-reported health and increased participation in vigorous physical activity. These findings suggest that retirement can support healthier behaviors when it is not precipitated by illness. In contrast, individuals who retire earlier than planned or cite health reasons for retiring experience a decline in health around the time of retirement, followed by a partial recovery in subsequent years. In these cases, retirement is likely the effect rather than the cause of the health decline.
Implications for Financial Planning and Policy
Taken together, these findings show that health and retirement are closely intertwined. Health shocks influence retirement timing, spousal health shapes household retirement decisions, and the health trajectory around retirement depends on the pathway into retirement.
Viewing health and retirement as mutually dependent processes can provide a clearer framework for understanding retirement behavior and later-life well-being. The two-way relationship between retirement and health can help to inform policies that aim to influence retirement or health. Individuals and financial planners can also benefit from understanding and incorporating health trajectories into retirement planning.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.
