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Health and Retirement: Do Changes in Health Affect Retirement Expectations?

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  • Kathleen McGarry
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    Abstract

    The choice of a retirement date is one of the most important decisions facing older workers. It is a decision that will affect their economic well-being for the remainder of their lives. One of the factors that undoubtedly impacts this choice is the worker's health. However, the many studies examining the realtionship between health and retirement have failed to reach agreement on the relative importance of health in comparison to financial variables. Efforts to do so have been hampered by the difficulty of correctly measuring health status. Much of the concern centers on the fear that subjective reports of health are biased by individuals using poor health as a justification for early retirement. This paper takes advantage of a unique measure of labor force attachment, the subjective probability of continued work, to re-examine the role of health and changes in health status By focusing exclusively on workers I eliminate the concern about justification bias among retired individuals and find that subjective reports of health do have important effects on retirement, effects that are arguably stronger than those of the financial variables. The effects of subjective health remain large even when more objective measures of health, such as disease conditions, are included in the model. I also find that changes in retirement expectations are driven to a much greater degree by changes in health than by changes in income or wealth.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9317.

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    Date of creation: Nov 2002
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    Publication status: published as McGarry, Kathleen. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?" Journal of Human Resources XXXIX 3 (2004):624-648.
    Handle: RePEc:nbr:nberwo:9317

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    Cited by:
    1. Daniel S. Hamermesh, 2004. "Subjective Outcomes in Economics," NBER Working Papers 10361, National Bureau of Economic Research, Inc.
    2. Doreen Wing Han Au & Thomas F. Crossley & Martin Schellhorn, 2005. "The effect of health changes and long-term health on the work activity of older Canadians," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 999-1018.
    3. Deschryvere, Matthias, 2004. "Health and Retirement. An Update of the Literature," Discussion Papers 932, The Research Institute of the Finnish Economy.
    4. Deborah A. Cobb-Clark & Steve Stillman, 2006. "The Retirement Expectations of Middle-Aged Individuals," CEPR Discussion Papers 540, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    5. Iskhakov, Fedor, 2008. "Dynamic Programming Model of Health and Retirement," Memorandum 03/2008, Oslo University, Department of Economics.
    6. Dwayne Benjamin & Loren Brandt & Jia-Zhueng Fan, 2003. "Ceaseless Toil? Health and Labor Supply of the Elderly in Rural China," William Davidson Institute Working Papers Series 2003-579, William Davidson Institute at the University of Michigan.
    7. Gisela Hostenkamp & Michael Stolpe, 2006. "The Health Gradient and Early Retirement: Evidence from the German Socio-economic Panel," Kiel Working Papers 1305, Kiel Institute for the World Economy.
    8. Jeff Borland, 2005. "Transitions to Retirement: A Review," Melbourne Institute Working Paper Series wp2005n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    9. Larsen, Mona & Datta Gupta, Nabanita, 2004. "The Impact of Health on Individual Retirement Plans: a Panel Analysis comparing Selfreported versus Diagnostic Measures," Working Papers 04-7, University of Aarhus, Aarhus School of Business, Department of Economics.
    10. Jones, Andrew M. & Rice, Nigel & Roberts, Jennifer, 2010. "Sick of work or too sick to work? Evidence on self-reported health shocks and early retirement from the BHPS," Economic Modelling, Elsevier, vol. 27(4), pages 866-880, July.

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