What Causes Workers to Retire before They Plan?

Abstract

This article 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. Our results indicate that health—both health “shocks” and initial poor health—is the most important factor in earlier-than-planned retirement, followed by involuntary job loss, and then changes within the family, especially a spouse’s retirement and having a parent move into the house. Changes in financial wealth do not have a significant impact on early retirement, but other, idiosyncratic factors may have some influence.

TOPICS: Retirement, legal/regulatory/public policy, tail risks