McGarry, Kathleen. 2004. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?" Journal of Human Resources 39(3): 624-648.

The choice of a retirement date is one of the most important decisions facing older workers. It is a decision that will affect their economic well-being for the remainder of their lives. One factor that undoubtedly impacts this choice is the worker’s health. However, the many studies examining the relationship between health and retirement have failed to agree on the relative importance of health compared with financial variables. Efforts to do so have been hampered by the difficulty of correctly measuring health status. Much of the concern centers on the fear that subjective reports of health are biased by individuals using poor health as a justification for early retirement. This paper takes advantage of a unique measure of labor force attachment, the subjective probability of continued work, to reexamine the role of health and changes in health status. By focusing exclusively on workers, I eliminate the concern about justification bias among retired individuals and find that subjective reports of health do have important effects on retirement, effects that are arguably stronger than those of the financial variables. The effects of subjective health remain large even when the model includes more objective measures of health, such as disease conditions. I also find that changes in retirement expectations are driven to a much greater degree by changes in health than by changes in income or wealth.

The author is a professor of economics at the University of California, Los Angeles and a research associate at the National Bureau of Economic Research. She thanks an anonymous referee for exceptionally helpful comments, and the National Bureau of Economic Research for generous fellowship support. The data used in this article can be obtained from the ISR at the University of Michigan at http://hrsonline.isr.umich.edu/