Retirement timing and subjective well-being: An instrumental variables approach

This article explores the relationship between retirement timing and subjective well-being at the onset of the retirement transition. Using panel data from the Health and Retirement Study (HRS), and instrumental variable techniques, two-stage Probit regression models estimate the effect of retirement timing on subjective health and feelings, while controlling for a large range of determinants of well-being, including pre-retirement health and feelings, prior job characteristics, and the retirement context. The results provide evidence supporting the hypothesis that the response of subjective well-being to retirement differs according to the timing of the transition. Both very early and very late retirement transitions are more likely to be detrimental for subjective well-being. Interestingly, workers who begin their retirement transition around age 62, Social Security's early eligibility retirement age, experience the greatest relative improvements in subjective well-being. The importance of cultural expectations and institutional cues attached to age transition patterns are underlined as potentially important structural factors shaping subjective well-being changes among workers transitioning to retirement. Policy and theoretical considerations from the findings are discussed.