Revisiting the Effect of Retirement on Cognition: Heterogeneity and Endowment

Since the seminal paper of Rohwedder and Willis (2010), the effect of retirement on cognition has drawn significant research interest from economists. Especially with ongoing policy discussions about public pension reforms and the increasing burden of dementia, it is indisputably an important research question with significant policy implications. Building on this growing literature, our paper makes two important contributions. First, we explicitly consider cognitive demands of jobs in studying hetereogeneity of the retirement effect. As the primary explanation for the potential adverse effect of retirement is that cognition is better maintained through mental exercise (Salthouse, 2006), by investigating the cognitive demands of the job one retires from we can directly test the hypothesized relationship. Second, we avoid biases associated with omitted variables, particularly by controlling for endowed cognitive ability. While endowed, genetic differences in cognitive ability is an important omitted variable that can explain individual differences in cognitive performance as well as selection into a particular type of job, this inherited characteristic has not been controlled for in the prior literature. Taking advantage of the polygenic risk score of cognition (Davies et al., 2015), we control for individual differences in genetic endowments in estimating the effect of retirement on cognition. We find supporting evidence for differential effects of retirement by cognitive demands of jobs after controlling for innate differences in cognition and educational attainment.