A Longitudinal Study of Well-Being of Older Europeans: Does Retirement Matter?

We examine determinants of financial and subjective well-being, in particular poverty and depression, among older individuals in Europe. We do so using the 2004, 2006, and 2010 waves of the Survey of Health Ageing and Retirement in Europe and estimating dynamic panel data and binary choice transition models. We find a number of common effects across financial and subjective well-being. Unemployment, disabilities, serious health conditions, lower education, being female, and not being married increase the probability of poverty or depression. Conversely, healthy individuals, those with higher levels of education, males, and married individuals have higher probabilities of exiting poverty or depression. The effect of retirement is of special policy interest. It turns out to be crucial to control for endogeneity (i.e. the possibility of reverse causality) of retirement. If we don’t control for endogeneity, retirement appears to increase both the risk of poverty and of depression. Once we control for endogeneity using instrumental variables, these negative effects disappear and point to weak evidence that retirement induced through eligibility for retirement pensions may be protective against poverty and depression.

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