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

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Abstract

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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Notes

  1. Social exclusion is often defined as the lack of opportunities and resources such as housing, employment or health care (Sen 2000).

  2. The main source for this data was Coe and Zamarro (2011). The official retirement ages refer to the law that was in place when respondents in SHARE were facing retirement decisions. Although some countries have started introducing policies to increase statutory retirement ages these reforms are very recent and did not affect the cohorts in our study. The only exception is Italy, where early retirement age increased to 60 in the last wave of data.

  3. This paper uses data from SHARE wave 4 release 1.1.1, as of March 28th 2013 or SHARE wave 1 and 2 release 2.6.0, as of November 29th 2013 or SHARELIFE release 1, as of November 24th 2010. The SHARE data collection has been primarily funded by the European Commission through the 5th Framework Programme (project QLK6-CT-2001-00360 in the thematic programme Quality of Life), through the 6th Framework Programme (projects SHARE-I3, RII-CT-2006-062193, COMPARE, CIT5-CT-2005-028857, and SHARELIFE, CIT4-CT-2006-028812) and through the 7th Framework Programme (SHARE-PREP, N° 211909, SHARE-LEAP, N° 227822 and SHARE M4, N° 261982). Additional funding from the U.S. National Institute on Aging (U01 AG09740-13S2, P01 AG005842, P01 AG08291, P30 AG12815, R21 AG025169, Y1-AG-4553-01, IAG BSR06-11 and OGHA 04-064) and the German Ministry of Education and Research as well as from various national sources is gratefully acknowledged (see www.share-project.org for a full list of funding institutions).

  4. SHARE retention rates with regard to the longitudinal part of the sample are about 73 % and refreshment samples were drawn each wave to increase net sample size and compensate for attrition in the longitudinal sample (See e.g. Borsch-Supan et al. 2013)

  5. To check for the validity of the instrumented used, we report Hansen/Sargan test statistics. The Hansen/Sargan test is used to check for the validity of the instruments used in an over-identified model. In particular, this test is based on the fact that the residuals should be uncorrelated with the set of exogenous variables if the instruments are truly exogenous. If we reject this hypothesis we cast doubt on the validity of the instrument set. The hypothesis cannot be rejected for any of our models at the 99 % confidence level and only one of them, IV model for the discrete transition of exit out of depression, we can reject the null hypothesis at the 95 % confidence level.

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Acknowledgments

This research was supported by the National Institute on Aging, under grant 2P01AG022481 “International Comparisons of Well-Being, Health and Retirement” and 2R01AG030153 “Integration Information about Aging Surveys”. We thank Caroline Tassot for her excellent research assistance.

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Authors and Affiliations

  1. Université du Québec à Montréal and RAND, Montreal, Quebec, Canada

    Raquel Fonseca

  2. USC Dornsife Center for Economic and Social Research, University of Southern California and RAND, Los Angeles, CA, USA

    Arie Kapteyn

  3. University of Southern California and RAND, Los Angeles, CA, USA

    Jinkook Lee

  4. USC Dornsife Center for Economic and Social Research, University of Southern California, Los Angeles, CA, USA

    Gema Zamarro

  5. University of California, Berkley and RAND, Berkeley, CA, USA

    Kevin Feeney

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  1. Raquel Fonseca
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  2. Arie Kapteyn
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  4. Gema Zamarro
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Correspondence to Gema Zamarro.

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Fonseca, R., Kapteyn, A., Lee, J. et al. A Longitudinal Study of Well-Being of Older Europeans: Does Retirement Matter?. Population Ageing 7, 21–41 (2014). https://doi.org/10.1007/s12062-014-9094-7

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