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The effect of retirement on cognitive abilities

From 18.12.2017 to 31.01.2018

SHARE-based study by Celidoni, Dal Bianco and Weber shows how retiring may lead to a decline of cognitive functions, but not for all

Does retirement lead to better or worse cognitive functions? The so-called “unengaged lifestyle hypothesis” states that cognitive functions will deteriorate after retirement. This is because retirees are engaged in less mental exercise than workers are. In other terms: Working as long as you can, may keep your cognitive functions intact longer. On the other hand, retirees may engage in new, stimulating activities that they could not cultivate while working.

Some studies suggest that retirees face a deterioration of abilities related to verbal fluency or memory. Others, on the contrary, find an improvement of these cognitive functions. Answering this question is not straightforward because there might be a reverse causal link: individuals who already experienced a bad health shock (e.g.: a stroke) might retire as soon as possible. If that is true, then it is not the postponed retirement which protects your cognition, it is your health that makes you retire later.

DSEA researchers Celidoni, Dal Bianco and Weber now published a study that exploits the information on pension eligibility across European countries using data from the Survey of Health Ageing and Retirement in Europe (SHARE). They show that most people retire either as soon as they become eligible for an early retirement pension scheme or as late as possible, when they reach statutory retirement age (when they lose their job or at least employment protection). In their work, they compare individuals of the same age whose retirement decision is driven by these rules – and analyse their cognitive functions (memory) immediately after retirement and many years later. This methodology allows them to circumvent the reverse causality problem mentioned above.

Their findings show that retirement is at first beneficial to cognition for all retirees (this is known as “the honey-moon effect”). The long-term effects of retirement differ markedly between those who retire as soon as possible and those who instead retire as late as possible. For the former, there are no adverse effects of retirement over and above the natural decline associated with ageing. For the latter, retirement has negative effects that cumulate over time and reinforce the age-related decline.

To the extent that early retirement is a free choice, but statutory retirement is not, this finding is consistent with the notion that individuals know what is best for them. The study shows in what ways early and late retirees differ: people that retire as late as possible tend to report a satisfactory working situation in which they were happy with their salary and their personal freedom. Those instead who retire as soon as possible tend to be men in low-skill jobs who more often report unsatisfying working conditions, such as little personal freedom and insufficient payment.

Study by M. Celidoni, C. Dal Bianco and G. Weber (2017). Retirement and cognitive decline. A longitudinal analysis using SHARE data. Journal of Health Economics 56 (Dec. 2017), pp. 113-125.

DOI: 10.1016/j.jhealeco.2017.09.003