What Causes Workers to Retire Before They Plan?

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This paper explores the extent to which health, employment, family, or finances are associated with earlier-than-planned retirement using the Health and Retirement Study (HRS). The importance of any shock that drives early retirement depends both on its effect on those experiencing it and its prevalence in the population; therefore, the analysis proceeds in two steps.  First, a probit regression is used to determine the strength of the relationship between the shocks and earlier-than-planned retirement, controlling for individual characteristics.  Second, to incorporate the prevalence of the shock, counterfactual experiments are run to determine how much early retirement would be reduced in the population if these shocks did not occur.

This paper found that:

  • Workers in poor initial health and workers who experience worsening health prior to their planned retirement date are significantly more likely to retire early than others.
  • Workers with retiree health insurance are slightly more likely to respond to health shocks by retiring early, but because the estimate is statistically insignificant, more research is needed to establish whether the Affordable Care Act (ACA) will induce workers with deteriorating health to retire earlier.
  • Workers who are laid off, workers whose spouse retires before their planned retirement date, and workers whose parents move into their home are also significantly more likely to retire early than others.
  • Job-to-job mobility makes workers more likely to reach their retirement plans, but only if the new job is less stressful, requires fewer hours, or is higher paid than the old one.
  • Health is the most important driver of early retirement, followed by layoffs or business closings, and then familial factors. Changes in finances play at most a small role.

The policy implications of this paper are:

  • To the extent health improves in the future, workers may be better able to realize their retirement plans, leading to later retirement dates.
  • The ACA is unlikely to significantly increase early retirement.
  • Periods of high involuntary job loss are likely to be associated with earlier-than-planned retirement, although those who do find new work can meet their original plans.