Will retirement make you happier?

"We find strong evidence that retirement improves both health and life satisfaction." This provocative line came from the summary of a recent National Bureau of Economic Research (NBER) working paper produced by researchers at George Mason University and Utah State University.

If you're of retirement age and on the fence about pulling the trigger on your retirement application, digging into this topic a little deeper is a good use of your time. You'll want to consider your unique life goals and circumstances, and not be influenced too much by studies that report averages over a broad population.

After all, deciding when to retire is one of the most important decisions facing older Americans. Ideally, you'll want a Goldilocks answer for yourself: Don't retire too soon or too late.

The NBER paper examined results from the respected Health and Retirement Survey (HRS) conducted by the University of Michigan, a longitudinal study of approximately 20,000 Americans age 50 and over every two years. The paper's primary goal is to help policymakers understand whether retirement increases or decreases health issues and how that changes the use of medical resources, and in turn, how that might affect the design of retirement programs. That's a different goal than providing individuals insights to help them plan their retirement.

The NBER paper reviewed various prior studies that came to contrasting conclusions on whether retirement improves health and well-being. The NBER paper builds on these studies by examining a number of measures of health and well-being, including self-reported health status, recent use of health care resources and the number of diagnosed conditions reported by HRS respondents.

The paper also attempted to adjust for the phenomenon that people with poor health tend to self-select into retirement and that improvements in health often take place over a long period of time, not just immediately following retirement.

The NBER paper found small but significant increases in self-reported health status. It found mixed results on measures of health care use and the number of diagnosed health conditions reported by respondents, but it ends up concluding that retirement doesn't have a significant impact on these outcomes.

The NBER paper also examined overall life satisfaction using a handful of measures. Defining happiness and life satisfaction for the purpose of conducting social science research is a tricky challenge. Simply reporting whether you're happy or satisfied with life is a simplistic measure, fraught with the potential to produce misleading conclusions.

So, the HRS attempts to refine understanding of life satisfaction by asking respondents to rate their agreement on a scale of one to seven with the following statements:

  • In most ways, my life is close to ideal.
  • The conditions of my life are excellent.
  • I am satisfied with my life.
  • So far, I have gotten the important things I want in life.
  • If I could live my life again, I would change almost nothing.

For the first three and the last of these statements, the NBER paper found small improvements associated with retirement along the one to seven measurement scale. These results are considered significant because of the large survey sample.

What does all this mean to you? As you can imagine, individuals can report dramatically different influences on their lives resulting from their retirement, and the potential impact has a number of dimensions:

  • Some people hate their job or, at best, tolerate their job because they need the money. These people often retire as soon as it's economically feasible. Other people enjoy their work, the mental stimulation or the social interaction they get from being employed, and they want to continue working in their later years.

  • Many workers may want to retire but simply don't have enough retirement income. Continuing to work is a conscious choice to maintain their standard of living, which takes priority over the freedom of retirement. Others put a higher priority on their freedom and are willing to accept reductions in their standard of living as an acceptable trade-off.

  • Some people retire and find they're bored or need extra income, and they "unretire" in a few months or years.

  • Many workers simply don't have the time or energy to make healthy improvements to their lifestyle, but retirement gives them the freedom to make these changes. In this case, retirement can indeed improve their health. On the other hand, some retirees simply increase the time they spend in front of the TV and end up watching their health deteriorate.

As you can see, choosing when to retire is a complex decision with a number of important considerations. At the heart of your decision is reconciling your relationship to work and your standard of living. If you really don't like your work but you don't have the resources to retire, something's gotta give: You can either retire and accept a lower standard of living, or you can figure out a way to improve your work life, either by reducing your hours or finding more enjoyable work.

A good place to start is to think about what you really want for the rest of your life. Then make a realistic assessment of your financial resources to see if they can support the life you want. It may be a tall order, but it's well worth the time considering how high the stakes are. And the only person who can answer these questions is you.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.