Retirement routes and the well-being of retirees

Abstract

As the Baby-Boomer generation approaches the retirement stage of the life cycle, understanding the implications of the labour market transition for individuals' well-being is increasingly important for policy making. In this article, we assess whether individuals successfully navigate the transition from work to retirement by analysing changes in subjective well-being with retirement using Australian panel data. To account for the fact that retirement is often a choice, we exploit social security eligibility rules to identify the causal effect of retirement on well-being. We find that life satisfaction significantly improves for the large majority of individuals who voluntarily retire from the labour force. However, there are also important disparities and individuals forced to retire early do not experience gains in life satisfaction with retirement. Moreover, the negative impact of involuntary retirement is greatest for individuals from disadvantaged backgrounds. We also present new evidence on intra-household retirement spillovers by assessing the effect of one partner's retirement circumstances on their spouse's life satisfaction. The article further extends the literature by examining the mechanisms through which retirement affects individuals' life satisfaction. We find that declines in life satisfaction are in part driven by an increase in financial hardship and reduced social interactions.