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The Role of Health in Retirement

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  • Alan L. Gustman
  • Thomas L. Steinmeier

Abstract

This paper constructs and estimates a dynamic model of the evolution of health for those over the age of 50 and then embeds that model of health dynamics in a structural, econometric model of retirement and saving. The health model traces the effects of smoking, obesity, alcohol consumption, depression and other proclivities on medical conditions, including hypertension, diabetes, cancer, lung disease, heart problems, stroke, psychiatric problems and arthritis. These in turn influence an overall index of health status based on self-reported health, work limitations and ADLs, which is used to classify the population into good, fair, poor or terrible health. Compared to a situation where the entire population is in good health, the current health status of the population reduces the retirement age of the entire population by an average of about one year. While poor health or terrible health have a great impact on the disutility of work and thus on retirement, fair health as opposed to good health has a relatively minor effect. Smoking depresses full-time work effort by up to 3.5 percentage points by those in the early sixties, reducing the average retirement age by four to five months. Effects of trends in health care and health policies on retirement are also analyzed. Including detailed measurement of health dynamics in a retirement model improves understanding of the effects of health on retirement. It does not, however, influence estimates of the marginal effects of economic incentives on retirement.

Suggested Citation

  • Alan L. Gustman & Thomas L. Steinmeier, 2014. "The Role of Health in Retirement," NBER Working Papers 19902, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19902
    Note: AG EH LS PE
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    References listed on IDEAS

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    Cited by:

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    2. Даниелян, Владимир, 2016. "Детерминанты Пенсионного Возраста: Обзор Исследований [Determinants of Retirement Age: A Review of Research]," MPRA Paper 73865, University Library of Munich, Germany.
    3. Blundell, R. & French, E. & Tetlow, G., 2016. "Retirement Incentives and Labor Supply," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 457-566, Elsevier.
    4. Marco Magnani, 2020. "Precautionary retirement and precautionary saving," Journal of Economics, Springer, vol. 129(1), pages 49-77, January.
    5. Murray, Tim & Dunn, Richard A., 2022. "Household production, home improvement, and housing investment among older Americans," Journal of Housing Economics, Elsevier, vol. 56(C).

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I1 - Health, Education, and Welfare - - Health
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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