Retiring from Happiness? Analysis of retirement and mental health using SHARE data

Abstract: We utilize data from the Survey of Health, Ageing and Retirement in Europe (SHARE) 1 to investigate the impact of retirement on mental health in a multi-country setting. To deal with endogeneity in retirement behaviour, we employ an individual-fixed effects IV strategy where pension eligibility thresholds at which financial incentives to retire are exploited to predict retirement behaviour. The combination of these quasi-experimental methods, with some borrowed intuition from the regression discontinuity literature, is the premise on which we are able to distinguish between short-, medium-, and long-term effects of retirement on mental health. Retirement is found to have no significant impact on mental health in the short- to medium-term. However, we find solid evidence of a large and negative impact of retirement on mental health in the long-term. The mental health effect of retirement is found to be homogeneous in terms of gender and marital status, but heterogeneous across educational attainment levels.