The Effect of Retirement on Cognitive Functioning

Cognitive impairment has emerged as a major driver of disability in old age, with profound effects on individual well-being and decision-making at older ages. Decelerating its decline among the elderly is one of the main challenges for ageing societies. In the light of policies aimed at postponing retirement ages, an important question is whether retirement has an influence on the descend rate. Among the life style and psychosocial risk factors, intellectual stimulation has often been mentioned as a key factor in maintaining high levels of cognitive functioning. We use data from the HRS to estimate a model for the change in cognitive functioning. As retirement and cognitive functioning may be endogenously related, we use unexpected early retirement window o ers to instrument for retirement behavior. These offers are legally required to be unrelated to the baseline health of the individual, and are significant predictors of retirement. While the simple OLS estimates show a negative relation between retirement and the rate of decline in various measures of cognitive functioning, instrumental variables estimates suggest that this may not be a causal effect. In particular, we do not find a clear relationship for white-collar workers and a positive relation for blue-collar workers