Retirement and Cognitive Development: Are the Retired Really Inactive?

This paper uses longitudinal test data to analyze the relation be- tween retirement and cognitive development. Controlling for individ- ual …xed e¤ects and lagged cognition, we …nd that retirees face greater declines in information processing speed than those who remain em- ployed. However, remarkably, their cognitive exibility declines less, an e¤ect that appears to be persistent 6 years after retirement. Both e¤ects of retirement on cognitive development are comparable to the e¤ect of a …ve to six-year age di¤erence. We show that the e¤ects of retirement on cognitive decline cannot be explained by (1) a re- lief e¤ect after being employed in low-skilled jobs, (2) mood swings or (3) changes in lifestyle. Controlling for changes in blood pressure, which are negatively related to cognitive exibility, we still …nd lower declines in cognitive exibility for retirees. Since the decline in in- formation processing speed after retirement holds particularly for the low educated, activating these persons after retirement could lower the social costs of an aging society.