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Introduction
Demographic projections clearly show that the population in most OECD countries is
ageing, and that the working-age population as a share of the total population will
decrease. This development will exert pressure on government budgets. This is both
because a larger fraction of elderly people will create greater demand for welfare
services and also because each potential taxpayer will have more non-workers to
support. As a
consequence, most OECD countries are undertaking measures to prolong
the careers of older workers. However, a natural question – which has been largely
overlooked by policy makers – concerns the effect of postponing retirement, on
individual well-being and, in particular, on health. Unfavorable (or favorable) effects
from retirement timing on health may not only influence individual wellbeing, but also
have direct effects on health care costs in society.
The aim of this study is to enhance the understanding of the consequences of
voluntary retirement on health. To this end, we make use of detailed longitudinal data
on inpatient care and mortality. In order to identify the causal effect of retirement timing
on subsequent health, we make use of a targeted retirement offer, implemented during
1992-1994, to army employees 55 years of age or older (explained in detail below).
Before this offer was instigated, the normal retirement age was 60 years of age for
regular military officers. The motivation behind the targeted retirement offer was the
need to rejuvenate staff in order to better serve the future needs of the Swedish defense.
As a result, early retirement for employees 55 years of age or older was offered in
negotiated agreements. We aim to estimate the effect of this early retirement offer on
the health of individuals who accepted this offer between the ages of 55–59 years, by
examining their subsequent health from ages 56–70. The identification strategy is based
on cohort variation in the timing of the offer and by using other civil servants not
affected by the early retirement offer to control for secular trends in schooling, nutrition
(i.e. early childhood difference at the cohort level), health care technology, and general
period effects.
We show that the targeted offer increased early voluntary retirement and decreased
market work. Moreover, the targeted offer had no effect on disposable income after the
regular retirement age of 60. We find that the opportunity to retire early reduced the
