Mental health around retirement: evidence of Ashenfelter's dip

Mental health issues among retirees have become increasingly concerning because the aging population presents a significant challenge globally, particularly in Western countries. Previous studies on this issue are plagued with bias owing to lacking panel data and estimation strategies. This study investigated the depression levels of European adults around the time of retirement.

We used data obtained from Waves 1-7 of the Survey of Health, Ageing, and Retirement in Europe (SHARE) to create panel data covering the 2004-2017 period. Wave 3 (SHARELIFE) was excluded from the sample because it provided mismatched information. Fixed-effects (FE) and fixed-effects instrumental variables (FE-IV) models with multiple imputations were employed to examine the impacts of retirement on mental health before and after retirement, where being over pension age (normal and early) was used as the instrument variable.

Our results indicated that retirement based on aspirational motivations (β =  - 0.115, p < 0.001) and positive circumstances (β =  - 0.038, p < 0.001) significantly reduced depression, whereas retiring under negative circumstances could deteriorate one's mental health (β = 0.087, p < 0.001). FE and FE-IV models indicated that overall, retiring reduced retirees' depression (β =  - 0.096, p < 0.001 and β =  - 0.261, p < 0.001, respectively). The results of FE-IV models showed that adults planning to retire in the next two years experienced less depression compared with others in the workforce (λ =  - 0.313, p < 0.01). These adults must have adjusted their lifestyles in response to their impending retirement, thereby evincing Ashenfelter's dip. Two years after retirement, when the "honeymoon" phase was over, retirees may have completely adapted to their new lives and the effect of retirement was no longer important.

Retirement improves mental health before it happens, but not after. Increasing the pension eligibility age may postpone the beneficial effects of retirement on health. However, policy implications should be tailored according to the unique situations of each country, job sector, and population. Providing flexible schemes regarding retirement timing decisions would be better than a generalized retirement policy.