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Insights in the Economics of Aging$
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David A. Wise

Print publication date: 2017

Print ISBN-13: 9780226426679

Published to Chicago Scholarship Online: September 2017

DOI: 10.7208/chicago/9780226426709.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 22 September 2021

Does Retirement Make You Happy?

Does Retirement Make You Happy?

A Simultaneous Equations Approach

(p.339) 11 Does Retirement Make You Happy?
Insights in the Economics of Aging

Raquel Fonseca

Arie Kapteyn

Jinkook Lee

Gema Zamarro

Anne Case

University of Chicago Press

Continued improvements in life expectancy and fiscal insolvency of public pensions have led to increased pension entitlement ages in several countries, but its consequences for subjective well-being are largely unknown. Financial consequences of retirement complicate the estimation of effects of retirement on well-being as financial circumstances may influence well-being, so the effects of retirement may be confounded by income changes. Also, unobservable determinants of income are probably related with unobservable determinants of well-being, making income possibly endogenous if used as control in well-being regressions. To address these issues, we estimate a simultaneous model of retirement, income, and subjective well-being while accounting for time effects and unobserved individual effects. Public pension arrangements (replacement rates, eligibility rules for early and full retirement) serve as instrumental variables. We use data from HRS and SHARE from 2004 to 2010. We find that depressive symptoms are negatively related to retirement while life satisfaction is positively related. Remarkably, income does not seem to affect depression or life satisfaction. This contrasts with correlations in the raw data showing significant relations between income and depression and life satisfaction. This suggests that accounting for the endogeneity of income in equations explaining depression or life satisfaction is important.

Keywords:   pension reform, well-being, financial consequences of retirement, depressive symptoms, life satisfaction

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