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

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  • Kathleen McGarry

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 factor that undoubtedly impacts this choice is the worker’s health. However, the many studies examining the relationship between health and retirement have failed to agree on the relative importance of health compared with 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 reexamine 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 the model includes more objective measures of health, such as disease conditions. 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.

Suggested Citation

  • Kathleen McGarry, 2004. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  • Handle: RePEc:uwp:jhriss:v:39:y:2004:i:3:p624-648
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    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • I1 - Health, Education, and Welfare - - Health

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