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Does retirement lead to life satisfaction? Causal evidence from fixed effect instrumental variable models

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  • Nguyen, Ha Trong
  • Mitrou, Francis
  • Taylor, Catherine L.
  • Zubrick, Stephen R.

Abstract

This paper presents robust evidence that retirement causally improves overall life satisfaction which is subsequently explained by improvements in satisfaction with one’s financial situation, free time, health, and participation in local community activities. Furthermore, while the positive wellbeing impact of retirement is sizable initially, it fades after the first 3 years. We find that the improvements in financial satisfaction upon retirement are only observed for low-income individuals. However, the wellbeing impact of retirement does not differ by gender, educational, occupational, economic or marital backgrounds. We also explore several potential explanations for our findings. This paper employs a fixed effect instrumental variable model, which exploits the discontinuity in the eligibility ages for state pension to construct an instrument for retirement, and 18 waves of high-quality Australian panel data. The results also suggest that failing to adequately account for the endogeneity of retirement would result in a downward-biased estimate of a positive wellbeing impact of retirement.

Suggested Citation

  • Nguyen, Ha Trong & Mitrou, Francis & Taylor, Catherine L. & Zubrick, Stephen R., 2020. "Does retirement lead to life satisfaction? Causal evidence from fixed effect instrumental variable models," GLO Discussion Paper Series 536, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:536
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    Cited by:

    1. Nguyen, Ha Trong & Mitrou, Francis & Zubrick, Stephen R., 2024. "Retirement, housing mobility, downsizing and neighbourhood quality - A causal investigation," Journal of Housing Economics, Elsevier, vol. 63(C).
    2. Nathan Kettlewell & Jack Lam, 2022. "Retirement, social support and mental well-being: a couple-level analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(3), pages 511-535, April.
    3. Zhu, Rong, 2021. "Retirement and voluntary work provision: Evidence from the Australian Age Pension reform," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 674-690.

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    More about this item

    Keywords

    Retirement; Wellbeing; Life Satisfaction; Instrumental Variable; Age Threshold; Australia;
    All these keywords.

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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