Does Retirement Affect Cognitive Functioning?

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ContentslistsavailableatSciVerseScienceDirect

Journal

of

Health

Economics

jou rn a l h o m e pa g e:w w w . e l s e v i e r . c o m / l o c a t e / e c o n b a s e

Does

retirement

affect

cognitive

functioning?

Eric

Bonsang

a,∗

_,

_Stéphane

_Adam

b

_,

_Sergio

_Perelman

c

a_Research_Centre_for_Education_and_the_Labour_Market_(ROA),_Maastricht_University,_P.O._Box_616,_NL-6200_MD_Maastricht,_The_Netherlands b_Psychology_of_Ageing_Unit,_University_of_Liège,_Traverse_des_Architectes_(B63c),₄₀₀₀_Liège,_Belgium

c_CREPP,_University_of_Liège,_Bd._du_Rectorat,₇_(B31),₄₀₀₀_Liège,_Belgium

a

r

t

i

c

l

e

i

n

f

o

Articlehistory: Received12April2011

Receivedinrevisedform2March2012 Accepted15March2012 Available online xxx JELclassiﬁcation: I12 J1 J24 J26 Keywords: Ageing Cognition Retirement Socialsecurity

Instrumentalvariableestimation

a

b

s

t

r

a

c

t

Thispaperanalysestheeffectofretirementoncognitivefunctioningusingalongitudinalsurveyamong

olderAmericans,whichallowscontrollingforindividualheterogeneityandendogeneityoftheretirement

decisionbyusingtheeligibilityageforsocialsecurityasaninstrument.Theresultshighlightasigniﬁcant

negativeeffectofretirementoncognitivefunctioning.Ourﬁndingssuggestthatreformsaimedat

pro-motinglabourforceparticipationatanolderagemaynotonlyensurethesustainabilityofsocialsecurity

systemsbutmayalsocreatepositivehealthexternalitiesforolderindividuals.

1. Introduction

Inmostdevelopedcountries,theproportionofolderindividuals

hassubstantiallyincreasedoverthelastfewdecades.This

demo-graphicshifthasincreasedthefocusonhealthinageing.Atthe

sametime,increasedlifeexpectancycombinedwithadeclinein

averageretirementagehasincreasedtheproportionofan

individ-ual’slifespentinretirement.Thisstructuralchangeimposesmany

challengesfortheﬁnancialsustainabilityofsocialsecuritysystems.

Moreover,thisextendedretirementperiodraisesquestionsabout

itspotentialconsequencesonthephysicalandmentalhealth of

theelderly,whichmayinturnaffectlong-termcareexpenditures

(Daveetal.,2008).

In arecent studyusing cross-sectionaldatafromtheUnited

States and Europe,1 _Adam _et _al. _(2007a) _found _that _retirees

attained lower cognitive functioning than working individuals.

∗ Correspondingauthor.Tel.:+31433883789;fax:+31433884914. E-mailaddresses:[email protected](E.Bonsang), [email protected](S.Adam),[email protected](S.Perelman).

1_The_Health_and_Retirement_Study₂₀₀₄_(HRS,_United_States);_the_English

Lon-gitudinalStudyonAgeing2004(ELSA,UnitedKingdom);theSurveyofHealth, Ageing,andRetirementinEurope2004(SHARE,Austria,Belgium,Denmark,France, Germany,Greece,Italy,theNetherlands,Spain,Sweden,andSwitzerland).

Furthermore,usingastochasticfrontiermethodology,theauthors

showedthatthelongertheretirementperiod,thelowerthe

cogni-tivetestscore,andthissuggestsanaccelerationofcognitivedecline

during retirement. However, the difference observed between

workersandretireesmayhaveexplanationsotherthanacausal

effectbetweenretirementandcognition.First,impairmentsin

cog-nitivefunctioningmaypreventpeoplefromworking,mayincrease

disutilityfromwork,ormaylowerproductivity.Moreover,

unob-servablefactorsassociatedwithcognitivefunctioningand

retire-mentmaybeinterrelatedwithboth.Individualswithhigherinnate

ability(andthuscognitivefunctioning)mayinvestmoreinhuman

capitalandretireatalateragethanindividualswithlowinnate

ability.

BasedonthedescriptiveevidencefromAdametal.(2007a),

Coe and Zamarro (2011), Mazzonna and Peracchi (2010), and

RohwedderandWillis(2010)havealsoinvestigatedthe

relation-shipbetweenretirement and cognitivefunctioning.In orderto

addresspotentialendogeneitybias,theyusedcross-nationaldata2

andthedifferencesinthelegalageofretirementacrosscountriesas

2 _Coe_and_Zamarro₍₂₀₁₁₎_use_the_ﬁrst_wave_of_SHARE_and_Mazzonna_and_Peracchi

(2010)theﬁrsttwowavesofSHARE.RohwedderandWillis(2010)complement SHAREdatawithcomparabledatafromtheELSAandtheHRS.

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instrumentsfortheretirementdecision.Theresultsweremixed:

whileRohwedderandWillis(2010),andMazzonnaandPeracchi

(2010)foundasigniﬁcantandquantitativelyimportantnegative

effectofretirementoncognitivefunctioning,3 _Coe_and_Zamarro

(2011)didnotﬁndasigniﬁcanteffect.

Althoughusingcross-countrydifferencesintheeligibilityage

for retirement beneﬁts as instruments can provide a powerful

empiricalstrategyinordertoidentifythecausaleffectof

retire-ment,itisnotwithoutitslimitations.Individualsfromdifferent

countriesfacedifferentinstitutionalsettings,constraintsand

cul-turaldifferencesbeyondretirementschemes.Thisheterogeneity

islikely topartlyshape thelevel andtheage-relatedproﬁleof

cognitivefunctioning,andtobecorrelatedwiththeinstitutional

settingsofretirementschemes.Forinstance,thereisaclear

North-Southgradientformanyhealthoutcomesbeyondcognitivetest

scores,withNortherncountriesusually performingbetterthan

Southerncountries(Börsch-Supanetal.,2005).Atthesametime,

eligibilityageforretirementtendstobehigherinNorthernthanin

SouthernEuropeancountries.Itisunlikelythatthecross-country

differences inretirement rules fullyexplain this pattern across

Europeancountries. Thosedifferencesmightthusinvalidatethe

exclusionrestrictionsandresultinanover-estimationoftheeffect

ofretirementoncognitivefunctioning.

Inthispaperweestimatethecausalimpactofretirementon

cognitivefunctioningusingpaneldatafromtheHealthand

Retire-mentStudy(HRS),alongitudinalsurveyamongindividualsaged

50+ livingin the UnitedStates. These dataallowus tocontrol

forindividualheterogeneity andtocircumventtheissueof the

endogenous retirementdecision by usingtheeligibility agefor

socialsecurityasaninstrument.Thepaneldimensionofthedata

allowsustocontrolfortime-invariantheterogeneity,suchasthe

cohorteffect,andthusstrengthensthevalidityoftheconditional

independenceandexclusionrestrictionsunderlyinginstrumental

variable(IV)estimation.Moreover,contrarytotheprevious

stud-iesinvestigatingtheeffectofretirementoncognitivefunctioning,

ouranalysisfocusesondatafromasinglecountrywithindividuals

facingbasicallythesameinstitutionalsettingsandconstraints.

Fur-thermore,weﬁndsuggestiveevidencethattheeffectofretirement

oncognitivefunctioningisnotinstantaneous,butappearswitha

lag.

Thepaperisorganisedasfollows.Section2presentsareviewof

theneuropsychologicalliteratureregardingcognitiveageingand

therelationshipbetweenactivitiesandcognitivefunctioning.

Sec-tion3 describesthe econometricapproach usedtoaddress the

empiricalissuesandSection4presentsthedataandourmeasureof

cognitivefunctioning,usedintheempiricalmodel.Section5details

theresultsfromtheempiricalanalysis.Finally,Section6concludes

anddrawsoutimplicationsfromtheanalysis.

2. Cognitiveageingandtherelationshipbetweenactivity andcognitivefunctioning

Olderindividualsfacemanychallengesassociatedwith

physi-calandmentaldeterioration.Amongthese,theage-relateddecline

insomeimportantcomponentsofcognitivefunctioning,i.e.ﬂuid

abilities,4_has_been_well_documented:_a_large_amount_of_evidence

3_Rohwedder_and_Willis’s₍₂₀₁₀₎_results_suggest_that_retirement_causes_a_drop

closeto40%inaveragecognitivescore.

4_Fluid_abilities_include_skills_such_as_processing_speed,_working_memory,_and

long-termmemory.Itisworthnotingthatotheraspectsofcognitivefunctioning, knownascrystallisedabilities(suchasverbalabilitiesorknowledge),havebeen showntoremainstable,oreventoimprovewithage(Dixonetal.,2004;Parketal., 2002;Schaie,1994).

suggeststhatageingisassociatedwithadeclineintheabilityto

performseveralcognitivetasks(Dixonetal.,2004;Schaie,1994).

Moreparticularly,ageinghasasalienteffectonepisodicmemory

tasks5₍_Petersen_et_al.,_1992;_Small,₂₀₀₁_),_episodic_memory_deﬁcits

beingalsolargelyconsideredasahallmarksymptomofAlzheimer’s

disease(Adametal.,2007b;Duboisetal.,2007).

However,thisdeclineinﬂuidabilitiesisnothomogenousacross

thepopulation,withsomepeoplemaintainingcognitivevitality

even intoextreme old age (Berkman et al., 1993; Silver et al.,

1998,2001).Atthesametime,age-relatedcerebralmodiﬁcations

thatareattherootofAlzheimer’sdiseasehavebeenobservedto

haveheterogeneouseffectsoncognitivefunctioning.Forexample,

Katzmanetal.(1989)describedcasesofcognitivelynormalelderly

womenwhowerediscovered(bymeansofpostmortemanalysis)

tohaveadvancedAlzheimer’sdiseasepathologyintheirbrains.

Stern (2002,2003) andScarmeas andStern (2003)proposethe

conceptofcognitivereservetoexplainthisapparentabsenceofa

directrelationshipbetweentheseverityofthefactorthatdisrupts

performance(suchasthedegreeofbrainmodiﬁcationwithage,

orbrainpathologyassociatedwithAlzheimer’sdisease)andthe

degreeofdisruptioninperformanceorofdysfunctionindailylife

activities.Thissuggeststhatsomeindividualsareabletomore

efﬁ-cientlyusetheircognitiveresourcesandarethuslesssusceptibleto

disruptionintheircognitivefunctioning.Individualheterogeneity

maystemfrominnateorgeneticdifferences,orfromdifferentlife

experiences,suchasoccupationalattainmentorleisureactivities.

Thedegreeofresiliencetothesebiologicalchanges,i.e.the

cog-nitivereserve,hasbeenfoundtodependonseveralfactors.Among

these,educationundoubtedlyplaysanimportantrole(Evansetal.,

1993; LeCarret etal., 2003).Moreover,differential

susceptibil-itytoage-relatedcognitivedeclineortoAlzheimer’sdiseasehas

alsobeenshowntoberelatedtooccupation(Evansetal.,1993;

Letenneuretal.,1994;Schooleretal.,1999;Sternetal.,1994),

pro-fessionalorleisureactivities(Capursoetal.,2000;Scarmeasetal.,

2001;Wilsonetal.,2002;NewsonandKemps,2005),andlifestyle

(forareview,see:Fillitetal.,2002;andFratiglionietal.,2004).

Insummary,thisliteraturesuggeststhatindividual

heterogene-ityinthelevelofcognitivefunctioningandtherateofage-related

changeincognitivefunctioningisassociatedwithanindividual’s

lifestyle,suchashis/herengagementinmentallystimulating

activ-ities (Salthouse,2006).Thishypothesis is quiteappealing,as it

suggeststhatindividualshavesomecontrolovertheevolutionof

theircognitivefunctioning,andthatthereisscopeforpolicy

inter-ventions,mainlyintheﬁeldofactiveageingpoliciespromoting

participation(WHO,2002),toaffectthepatternofcognitiveageing.

However,thewaythecausalityrunsbetweenactivitiesandthe

brainremainsanopenquestioninneuropsychology.Doactivities

improvecognitivefunctioningorarebrighterpeoplemoreoften

engagedincognitivelydemandingactivities?Whilethereissome

kindofconsensusregardingtheeffectofcognitivefunctioningon

activities,6_the_effect_of_activities_on_cognitive_functioning_is_more

opentodebate.Oneargumentfavouringthislatterhypothesiscan

befoundintheneurobiologicalliterature,whereseveral

experi-mentalstudiesonanimalshaveshownthatratsbredinanenriched

environmentpresentagreaterdendriticdensityinthe

hippocam-pusandanincreasednumberofglialcellsthananimalsbredin

standard conditions(Rosenzweigand Bennett,1972).Moreover,

5_Episodic_memory_refers_to_memory_of_information_about_speciﬁc_past_events

thatinvolvedtheself(i.e.eventspersonallylived)andoccurredataparticulartime andplace(e.g.apreviousholiday).

6_Several_studies_have_shown_that_cognitive_impairment_is_associated_with_an

increaseinlimitationsonactivitiesofdailyliving(Agüero-Torresetal.,1998; Bennettetal.,2002;Moritzetal.,1995).

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Winocur(1998)showedthatthesebrainmodiﬁcationsaffectthe

cognitiveabilitiesofolderrats.Asecondargumentinfavourofthe

causaleffectofactivitiesoncognitivefunctioningcanalsobefound

instudiessuchasthatofMaguireetal.(2000),whichshowedthat

taxidriversinLondon,whohaddevelopedanintensiveknowledge

oforientationinthecity,hadasigniﬁcantlylargerposterior

hip-pocampithancontrolsubjects,andaboveall,thattheamountof

occupationalexperiencewascorrelatedwiththesizeofthe

hip-pocampus.Thosestudiessuggestthereforethatactivitieshavea

directeffectoncognitivefunctioning.

Theaimofourstudyistoaddressthecausalimpactoflifestyle

onthecognitivefunctioningofolderpeoplebyfocusingonthe

relationshipbetweencognitivefunctioningandretirement.Indeed,

retirement implies major changes in individual lifestyle and is

likely toaffectinvolvementin activitiesthatmaycontributeto

maintaining, orimproving,cognitivefunctioningatolderage.If

individualshaveonaveragemorecognitivelystimulating

activi-tiesatworkthanduringretirement,wewouldexpectadecline

incognitivefunctioningduringretirementduetothedecreasein

stimulatingactivities,assuggestedbytheneuropsychological

lit-erature.

3. Empiricalstrategy

Theaimoftheempiricalanalysisistotestthehypothesisthat

retirementaffectscognitivefunctioning.Inourmodel,weassume

thatcognitivefunctioning(cit),asmeasuredbythescoreobtained

atacognitivetest(describedbelow),dependsonretirementstatus

(rit)andasmoothfunctionofage(f(ageit)),alongwithanerrorterm

thatcanbedecomposedintounobservedtime-invariant

hetero-geneity(i)andanidiosyncraticerrorterm(i).Assuminglinear

separability,cognitivefunctioningisgivenbythefollowing

equa-tion:

Cit=ritˇ+f(ageit)+i+it, (1)

Identiﬁcationof thecausaleffect of retirementoncognitive

functioningrequires theerrortermtobemean independentof

retirement,age,andtheunobservedtime-invariantheterogeneity.

Thisrequirementisunlikelytohold:ﬁrst,retirementandcognitive

functioningmaybeendogenous:decreasingcognitivefunctioning

mayinduceretirement.Second,individualheterogeneitymaybe

correlatedwithboththeretirementdecisionandcognitive

func-tioning.

The ﬁxed effects (FE)estimator allows measurement of the

parameters ofinterest, controllingfor time-invariant individual

heterogeneity.Theeffectofretirementoncognitivefunctioning(ˇ)

willbeconsistentlyestimatedunlessitiscorrelatedtothe

retire-mentdecision.Thisrequirementisunlikelytoholdif,forexample,

retirementisinducedbyanegativehealthshockthatisalso

cor-relatedtocognitivefunctioning.Furthermore,theFEestimatesare

alsosusceptibletoattenuationbiasfrommeasurementerrorinthe

retirementvariable(GrilichesandHausman,1986).Wedealwith

thosetwoissuesbyusingIVmethods.Tobevalid,theinstruments

mustberelatedtotheretirementdecisionandcorrelatedto

cogni-tivefunctioningonlythroughtheeffectofretirement.Largespikes

intheretirementhazardatages62and65havebeenwellnoted

intheliterature,andﬁnancialincentivesinducedbysocial

secu-rityhavebeenfoundtoplayasigniﬁcantroleinexplainingsuch

spikes,especiallyatage62(BurtlessandMofﬁtt,1984;Peracchi

andWelch,1994;Ruhm,1995;GruberandWise,1999;Coileand Gruber,2001).WethususethesekeyretirementagesintheUnited

Statesasidentifyinginstrumentsfortheretirementdecision.Age

62representstheearliestageatwhichsocialsecuritybeneﬁtscan

beclaimed and wheretheﬁnancial incentives toretirearethe

strongest,whileage65isthenormalretirementageintheUS(i.e.

theageatwhichindividualscanreceivefullsocialsecuritybeneﬁts

iftheyretireatthatage).Notethatthenormalretirementageis

settoincreasetoage67overa22-yearperiod;thisaffects

peo-plebornonJanuary2,1938,andlater. Notehoweverthatmost

ofindividualsinouranalyticalsamplearestillfacingthenormal

ageofretirementsetatage65orhadnotyetreachedthe

nor-malageofretirementduringthesampleperiod.Ouridentiﬁcation

strategythusdoesnotheavilyrelyonthechangeintheretirement

ageacrosscohortsbutonthediscontinuityintheproportionof

retiredpeopleattheeligibilityageforsocialsecuritybeneﬁtsand

thenormalageofretirement,conditionalonasmoothfunctionof

age.Theinstrumentalvariablesarethuscomputedastwodummy

variablesequalto1iftheindividualreacheseitherthe

correspond-ingage-thresholdsintheretirementequation,whilethecognitive

functioningequationincludesageasasmoothfunctionusing

low-orderpolynomials.Whilethesespeciﬁcagevaluesarelikelytohave

adirecteffectonthedecisiontoretire,itislesslikelythatthey

haveaparticulareffectoncognitivefunctioning,exceptthrough

retirement.

Identifyingthecausaleffectofretirementoncognitive

func-tioninginvolvesanotherissue:theeffectofchangesinlifestyleon

cognitivefunctioningmaynotbeimmediate.7_Indeed,_it_is_unlikely

thatretirementhasaninstantaneousimpactoncognitive

function-ing.Wemightexpectthattheeffectofachangingenvironment

wouldoccurwithalag.Cognitivefunctioningshouldthereforebe

modelled,notasafunctionofcurrentenvironmentalvariables,but

withalag.Asaresult,thecognitivefunctioningequationshould

includeasanendogenousvariableadummyforbeingretiredforat

leastoneyear,andtheinstrumentsshouldthenbecomethreshold

dummiesforreaching63yearsandthenormalageofretirement

plusone.The empirical strategy consistsﬁrst of estimating Eq.

(1)usingthetwo-stageleastsquaresFEestimatorwiththeseage

thresholddummiesasinstrumentsforbeingretiredforatleastone

year.

There are at least two explanations as to why we should

expect the effect of retirement not to be instantaneous. First,

wemight expectthat thechanges in activitieswould translate

onlyprogressivelyintochangesincognitivefunctioning.Asecond

potentialexplanationcomesfromthegerontologicalliteraturethat

describesthedifferentphasesofretirement.Atchley(1976,1982)

hassuggestedthatretireesmayexperiencea“honeymoonphase”

followingretirement,whichischaracterisedbyaperiodinwhich

theindividualengagesindifferentactivitiesthathe/shehasputoff

foryearsbecauseofwork-relatedconstraints.Thisengagementin

desiredactivitiesmayattenuatethenegativeeffectofretirement

oncognition.8

Moreover,theeffectofretirementoncognitivefunctioningmay

alsobeacumulativeprocesswheretheeffectofbeingretiredwould

alsodependontheexposuretoretirement,i.e.theperiodoftime

sincetheindividualretired.9_This_last_point_is_crucial_in_terms_of_the

consequencesofretirementreformsaimedatincreasingtheageof

retirement.Ifretirementsimplyhasaconstanteffectoncognitive

functioning,wewouldnotexpectanincreaseinretirementage

tohavemuchimpactonthedependencyoftheelderlybecauseof

cognitiveimpairmentatolderage.If,however,theimpactis

cumu-lative,thenanincreaseintheageofretirementmayresultinan

7 _This_possibility_has_also_been_stressed_by_Rohwedder_and_Willis₍₂₀₁₀₎_. 8 _This_phase_has,_to_some_extent,_been_veriﬁed_empirically_(e.g._George_and

Maddox,1977;Ekerdtetal.,1985;Galletal.,1997).

9 _There_are_some_descriptive_evidence_for_such_a_cumulative_effect₍_Adam_et_al.,

2007a).MazzonnaandPeracchi(2010)alsotakeintoaccountretirementduration intheirmodel.

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improvementincognitivefunctioninglaterinlife.So,anincrease

intheageofretirementwouldprobablydelaytheappearanceof

cognitiveimpairmentatolderage,andthusdecreaselong-term

careexpenditures.

4. Data

4.1. TheHealthandRetirementStudy

Ourempiricalanalysisusessixwaves(1998–2008)fromthe

HealthandRetirementStudy(HRS).10_The_HRS_has_been

follow-ingasampleofAmericansbornbetween1931and1941andtheir

partners since 1992. Since 1998, this survey has also included

respondentsfromtheAssetandHealthDynamicsAmongtheOldest

Old(AHEAD)study(cohortsbornbetween1890and1923),anda

representativesampleofindividualsbornbetween1924and1930

(theChildrenoftheDepressionAge)andbetween1942and1947

(WarBabies).Anadditionalsampleofindividualsbornbetween

1948and1953(EarlyBabyBoomers)wasaddedin 2004.Most

interviewswere carried out by telephone, although exceptions

weremadewhentheindividualhadhealthlimitationsorwhen

thehouseholdhadnotelephone.Thedatacontainawiderangeof

informationaboutmentalandphysicalhealth,employmentstatus,

ﬁnancialsituation,thefamily,andactivitiesoftherespondents.

In ourstudy, werestricted the sampleto respondentsaged

between51 and 75 (82,462 observations). We excluded proxy

interviews from the analysis, as the memory test was not

performedbythoseindividuals(5807observations).Where

infor-mationregardingtheworkingstatusofparticipantswasmissing

from the HRS data (101 observations) or where respondents

reportednever having worked(2473 observations),these

indi-vidualswerealsodroppedfromtheanalyticalsample.Moreover,

allindividualswhoreportedreturning toworkduringthe

sam-plingperiodweredroppedfromthestudy(11,240observations).11

Including those individuals in the sample would require the

assumptionthattheeffectoncognitivefunctioningofleavingthe

labourforceorgoingbackintothelabourforcewouldbe

symmet-ric.Moreover,wecouldarguethatindividualsgoingbacktowork

aremorelikelytoremainactiveinthelabourmarket(e.g.

look-ingforajob)duringtheirnon-workingperiod.Wealsoexcluded

fromtheanalysisindividualsforwhomtheinformationregarding

theyeartheylefttheirlastjobwasmissing(3575observations).In

addition,weexcludedfromthesampleindividualswhoreported

havinglefttheirlastjobbeforetheageof50(4334observations).

Individualswithamissingcognitivescoreweredroppedfromthe

sample(555observations).Theﬁnalsamplecorrespondedtoan

unbalancedpanelincluding54,377observationsfor14,710

indi-viduals.

4.2. Themeasureofcognitivefunctioning

TheHRScontainsmeasuresofcognitivefunctioningbasedon

simpletests.OurempiricalanalysisusingtheHRSfocusesonone

keycognitivedomain:episodicmemory,whichisassessedthrough

atestofverballearningandrecall.Themotivationforanalysingthis

particularcognitivedomainistwofold:ﬁrst,thiscognitiveaspect

isparticularlyaffectedbyageing;somestudiesevenarguethat

thiscognitivefunctionisamongtheﬁrsttodeclinewithageing

(Souchayetal.,2000;AndersonandCraik,2000;Prulletal.,2000).

10_The_HRS_is_sponsored_by_the_National_Institute_of_Aging_(grant_number_NIA

U01AG009740)andisbeingconductedbytheUniversityofMichigan.

11 _We_assess_the_sensitivity_of_our_results_to_the_inclusion_of_those_individuals_in

thesampleinSection5.4.3.

Second,therelatedmeasureusedtoassessepisodicmemory,i.e.

thescoreobtainedinatestofwordlearningandrecall,doesnot

sufferfromﬂoororceilingeffects(excessofmaximumor

mini-mumvalues),anditthusprovidesamoresensitivemeasurethan

othermeasuresofcognitivefunctioningthatonlyallowforlimited

variabilityinscores.IntheHRS,theepisodicmemorytaskconsists

oflearningalistoftencommonwords.12_The_interviewer_reads

alistof10words(e.g.book,child,hotel,etc.)totherespondent,

andaskstherespondenttorecallasmanywordsaspossiblefrom

thelistinanyorder.Followingthis,immediateanddelayedrecall

phasesarecarriedout.Immediaterecallfollowsdirectly,whilea

shortintervalisinsertedbeforethedelayedrecall.Memoryscore

forthistaskiscalculatedbythesumofthenumberoftargetwords

recalledattheimmediaterecallphaseandthenumberoftarget

wordsrecalledatthedelayedrecallphase(scorerangingfrom0

to20).Thememoryscorehasadistributionclosetothenormal

distributionwithasamplemeanof10.6andastandarddeviation

of3.4.

4.3. Theretirementvariable

Therearemanydeﬁnitionsofretirement.Forthepurposeof

ouranalysis,wefollowLazear(1986)anddeﬁneanindividualas

beingretiredifhe/sheisdeﬁnitivelyoutofthelabourforcewith

theintentionofstayingoutpermanently.AkintoCoeandZamarro

(2011),MazzonnaandPeracchi(2010),andRohwedderandWillis (2010),anindividualisdeﬁnedas“Working”ifhe/sheclaimsto

becurrentlyworkingforpayand“Retired”ifhe/shereportsnot

working.13_HRS_also_includes_information_about_the_year_and_the

monththeindividual’slastjobended,andweusethistomeasure

retirementdurationandthedummyvariablereportingwhether

theindividualhasbeenretiredforatleastoneyear.

5. Results

5.1. Mainresults

BeforeturningtotheIVestimation,wewillﬁrstdescribe

retire-ment behaviourand theproﬁleofcognitivefunctioningaround

the key ageof retirement in theUnited States. Fig.1 presents

theestimatedcognitivetestscoresbyagefrom55to70 years,

controlling for individual ﬁxed effects. This ﬁgure highlights a

signiﬁcantdeclineincognitivescoresaftertheageof62,which

correspondstotheminimumageatwhichsocialsecuritybeneﬁts

canbeclaimed.Fig.2presentstheestimatedretirement

probabil-itychanges(Fig.2a)andcognitivetestscorechanges(Fig.2b)as

individualsbecomeoneyearolderbetweentheagesof55and70,

controllingforindividualﬁxedeffects.14_As_expected,_we_observe

12_Note_that,_in_practice,_the_HRS_uses_four_different_lists_of_common_words_and

thatrespondentsareaskedadifferentlistofwordsfromtheliststhatthey,andtheir spouse,hadtoanswerduringthepreviouswave.Thisisdoneinordertoavoidthe respondentrememberingthewordsfromthatpreviouslist.Thereisevidenceof suchalearningeffectwiththeﬁrsttwowavesoftheHRS,whereindividualswere askedtorecallthesamelistofwords.

13_In_our_sample,_the_vast_majority_of_non-working_individuals_report_being_retired

(86.3%).8.2%reportbeingoutofthelabourforce,3.9%reportbeingdisabled,0.8% reportbeingunemployed,and0.8%reportbeingpartlyretired(althoughtheyreport notworkingforpay).Thusstrictlyspeaking,ourstudyanalysestheeffectofnot workingforpayatolderages.

14_More_{speciﬁcally,}_we_estimate_the_following_model:y it=˛i+

70

a=56

ada_it+it,

whereyitiseithertheretirementdummy,orthecognitivetestscore,da_it=1[ageit≥

a],˛iistheindividualﬁxedeffect,anditistheerrorterm.Fig.2reportstheestimates

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9. 5 10 10. 5 11 11. 5 12 Cogni ti ve s core 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Age

Fig.1.Age proﬁleofcognitivetestscore.Note:HealthandRetirementStudy 1998–2008.Theestimatesarebasedonaﬁxed-effectmodelincludingagedummies asexplanatoryvariables.

asigniﬁcantincreaseintheprobabilityofretiringatage62.We

alsoobserveasmallincreaseintheprobabilityofretiringatage65

and66,theageatwhichfullsocialsecuritybeneﬁtscanbeclaimed

(dependingonthecohort),butthisincreaseisfarlessimportant

thanforage62.Strikingly,Fig.2bhighlightsasigniﬁcantdropin

cognitivescoresfromage62to63.Wealsoobserveasigniﬁcant

dropatage66and67,butthesedropsaremuchlowerin

mag-nitude.Thereisnobiologicalreasonforchangesintheprocessof

cognitivedeclineatthoseparticularages.Ageingisalong-term

pro-cessandisnothomogeneousacrossindividuals.Theevolutionof

averagecognitivefunctioningshouldthusbeacontinuousfunction

ofage.Theseﬁguressuggestshoweverthatthereisasigniﬁcant

decreaseincognitivefunctioningafterreachingtheminimumage

ofeligibilityforreceivingsocialsecuritybeneﬁts,whichalso

corre-spondstothepeakageofretirementintheUnitedStates,asshown

inFig.2a.Thisﬁrstdescriptiveresultsupportsourhypothesisthat

retirementisaccompaniedbyadeclineincognitivefunctioning

andthatthisdeclineisnotlikelytooccurimmediatelyatthetime

ofretirement.

Inlightofthosepreviousresults,weconsideranFE-IV

estima-torwheretheendogenousvariableisadummythatisequaltoone

whentheindividualhasbeenretiredforatleastoneyear.Asa

con-sequence,weuseasinstrumentsage-thresholddummyvariables

forreachingtheminimumageforbeingeligibleforsocialsecurity

beneﬁtsplusone(63years)andthenormalretirementageplus

one(normalretirementagedependingonthecohortconsidered).

TheFE-IVestimatorusesonlythedummyforbeingretiredforat

leastoneyearasanendogenousvariableandthusdoesnottake

intoaccountretirementduration.Sothecoefﬁcientrelatedtothe

retirementvariableintheFE-IVmodelhastobeinterpretedasthe

averageshorttermeffectofretirementoncognitivefunctioning,

whichroughlycorrespondsinoursampletoawithinaverageeffect

ofabout5yearspostretirement.Second-orderpolynomialsofage

areincludedascontrolsinordertoaccountforthe“normal”

cog-nitiveageingprocess.Theeffectofageisassumedtobequadratic,

allowingcognitivefunctioningtodeclineatanincreasingratewith

ageing.Thenextsectionwilldiscussthesensitivityofourresults

todifferentfunctionalformsfortheagetrend.

Table1presentstheparameterestimatesofthemodel

esti-mated by the two-stage least squares within estimator. The

coefﬁcientsoftheﬁrst-stageequationdescribingtheprobability

ofbeingretired(forat leastoneyear) aredisplayedin column

(i).Theinstruments,i.e.theeligibilityages(plusone)forsocial

security,havelargeandhighlysigniﬁcanteffectsonthe

probabil-ityofbeingretiredforatleastoneyear.Thisprobabilityincreases

by about 10.8 percentage points at age 63 and by 6.8 points

whenbeingstrictlyolderthanthenormalretirementage.The

F-testofjointsigniﬁcance oftheinstrumentsproposedbyBound

etal. (1995) conﬁrms thatthe instrumentsare signiﬁcant

pre-dictorsofretirement(F(2,12,361)=193.05).TheSargan–Hansen

testofoveridentifyingrestrictiondoesnotrejectthehypothesis

that ourinstruments are valid. Column (iii) presents the

coef-ﬁcient estimates of the reduced-form regression that includes

0 .02 .04 .06 .08 .1

Changes in retirement probability 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Age

a

-.6 -.4 -.2 0 .2

Changes in cognitive score

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Age

b

Fig.2. Changesinretirementprobabilityandchangesincognitivetestscoresbyage.Note:HealthandRetirementStudy1998–2008.Allrespondentswereagedbetween55 and70.Thefiguresshowthecoefficientestimatesandthecorresponding95%-confidenceinterval(verticalgreylines)fromthefollowingmodel:yit=˛i+

70

a=56

ada_it+it,

whereyitiseithertheretirementdummy,orthecognitivetestscore,da_it=1[ageit≥a],˛iistheindividualﬁxedeffect,anditistheerrorterm.Theﬁguresreportthe

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Table1

Cognitivefunctioningandretirement.FE-IVestimates.

Retiredforatleastoneyear Cognitivescore

Firststage(i) FE(ii) Reducedform(iii) IV(iv)

Retiredforatleastone

year – −0.148*** _– _−0.942*** (0.049) (0.339) Instruments >62yearsold 0.108*** _– _−0.100** _– (0.007) (0.044) >Normalageof retirement 0.068*** _– _−0.067 _– (0.006) (0.046) Controls Age 0.021*** _0.457*** _0.458*** _0.478*** (0.006) (0.045) (0.047) (0.046) Age2 _0.001 _−0.047*** _−0.046*** _−0.046*** (0.000) (0.004) (0.004) (0.004)

Testofoveridentifyingrestriction(p-value) 0.944

Durbin–Wu–Hausmantest(p-value) 0.017

Within-R2 _0.242 _0.045 _0.045 _–

N 54,377 54,377 54,377 54,377

Note:HealthandRetirementStudy1998–2008.Allrespondentswereagedbetween51and75.Robuststandarderrorsareinparentheses.

*_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_10%_level. **_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_5%_level. ***_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_1%_level.

onlythesecond-orderpolynomialinageandtheinstrumentsas

explanatoryvariables.Thecoefﬁcientsrelatedtotheage

thresh-oldssuggestthatthereisadropatthosespeciﬁcages,especially

atage63,inaccordancewiththeresultspresentedinFig.2b.More

interestingly,therelativedifferenceinthecoefﬁcientestimates

betweenthetwoinstrumentsintheﬁrst-stageequationisabout

thesameastherelativedifferenceobservedinthereduced-form

equation.

Theeffectonmemoryscoreofbeingretiredforoneyearormore

isnegativeandhighlysigniﬁcant(seecolumn(iv)).Thissuggests

thatindividualsretiringexperienceadropincognitivetestscore

byabout 1 point(coefﬁcient estimate: −0.942; 95%-conﬁdence

interval−1.61to−0.28).Thiscorrespondstoabouta10%decrease

incognitivescore(comparedtothesampleaveragescore).15_The

estimateislargerthaninthemodelthatassumesexogeneityof

retirement(seecolumn(ii)).TheDurbin–Wu–Hausmantestrejects

thenullhypothesis ofexogeneityofretirementatthe5%-level.

Thismightbeexplainedbyseveralreasons:First,thepresenceof

measurementerrorsintheretirementvariablesarelikelytobias

downwardthewithinestimates.Furthermore,theeffectof

retire-mentoncognitivefunctioningislikelytobeheterogeneous.Asa

result,theIVestimatesidentifyaLocalAverageTreatmentEffect

(ImbensandAngrist,1994):theeffectofretirementforthosewho

effectivelyretireatthosespeciﬁcages.Bycontrast,theFE

estima-torestimatestheaverageeffectofbeingretiredforallthosewho

haveretiredduringthesampleperiod.Onepotentialexplanation

forthedifferencebetweentheFEestimatorandtheFE-IV

estima-toristhattheFEestimatoralsotakesintoaccounttheeffectof

15 _We_have_also_estimated_the_model_for_men_and_women_separately_and_found

nosignificantdifferenceintheeffectofretirementbetweenmenandwomen. Notehoweverthatthecoefficientestimateislargerformen(coefficientestimate: −1.210;standarderror:0.437)thanforwomen(coefficientestimate:−0.726; stan-darderror:0.514),thelatterbeingnotsignificantlydifferentfromzero.Underother modelspecificationsthecoefficientestimateforwomenisnegativeandsignificantly differentfromzerobuttheeffectmoresalientformen.Apotentialexplanationof thiswouldbethatthetransitionbetweenprofessionalactivityandretirementis steeperformencomparetowomen:menbeingmorework-centeredthanwomen, whilefamilycentralityishigheramongwomenthanamongmen(Mannheim,1993; SharabiandHarpaz,2011).Thisinterpretationremainshoweverspeculativeand openforfurtherresearch.

retirementforindividualswhohadbeenworkingforafewhours

perweek,orhadalreadybeenpartiallyretired.Forthose

individ-uals,wemightexpectthattheeffectofthistransitiononcognitive

functioningmightbemuchlowerthanforfull-timeworkerswho

retiremore“sharply”.Thissharperchangeinworkintensityisalso

morelikelytooccuratthosespeciﬁceligibilityages,especiallyat

theminimumageforbeingeligibleforsocialsecuritybeneﬁtsas

manyworkershadbeen“constrained”towaitforthisagebefore

beingabletoaffordtoretire.Asanillustration,wecomparedthe

averagenumber ofhoursworkedbyindividualswho retiredat

thosespeciﬁcagestothosewhoretiredatanotherageduringthe

samplingperiod.Controllingforalinearagetrend,wefoundthat

thosewhoretiredatthosespeciﬁcageswereworking,onaverage,

about2hmorethanindividualswhoretiredatanotherage.Finally,

itshouldbenotedthatthisidentiﬁedlocalaverageeffectisof

par-ticularinterestforpolicymakersasitcorrespondstotheeffectof

retirementoncognitivefunctioninginducedbytheeligibilityage

forretirement,whichisthemaintoolusedbymanycountriesto

increaselabourforceparticipationofolderworkers.

5.2. Functionalformfortheagetrend

Ouridentiﬁcationstrategyisbasedonage-relatedinstruments

anditmaythereforedependonthefunctionalformadoptedto

con-trolforthe“normal”cognitiveageingprocess.Inthissection,we

testtherobustnessofourresultsbytestingfourdifferentfunctional

formsforage.Weadoptfourspeciﬁcationsforagetrend:linear,

quadratic,cubic,andquartic.TheresultsfromtheFE-IVestimators

arepresentedinTable2.Fromthistable,weseethatthecoefﬁcient

estimatesofbeingretiredforatleastoneyeararequite

insensi-tivetothefunctionalformadopted,althoughthestandarderrors

increasesubstantiallyonceweusethecubicandquarticfunctional

formforage.Themodelwiththelinearspeciﬁcationistheonly

onetofailtopasstheoveridentiﬁcationtest,suggesting

misspec-iﬁcation.Thisconﬁrmstheimportanceoftakingintoaccountthe

factthatcognitivedeclineduetoageingtendstobefasteratolder

age.Notealsothatforthecubicandquarticspeciﬁcation,noneof

thecoefﬁcentestimatesrelatedtothepolynomialsinageare

sig-niﬁcant.Theseresultssuggestthatthequadraticspeciﬁcationis

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Table2

Cognitivefunctioningandretirement.FE-IVestimates.Testsfordifferentfunctionalformsforage.

Cognitivescore

(i) (ii) (iii) (iv)

year −1.121*** _−0.942*** _−0.960 _−0.924 (0.340) (0.339) (0.671) (0.680) Age −0.096*** _0.478*** _0.437 _−3.217 (0.014) (0.046) (1.111) (6.782) Age2_/10 _– _−0.046*** _−0.039 _0.842 (0.004) (0.180) (1.631) Age3_/100 _– _– _−0.000 _−0.094 (0.009) (0.174) Age4_/1000 – – – 0.004 (0.007)

Testofoveridentifyingrestriction(p-value) 0.000 0.944 0.941 0.830

Durbin–Wu–Hausmantest(p-value) 0.004 0.017 0.216 0.241

N 54,377 54,377 54,377 54,377

5.3. Cognitivefunctioningandretirementduration

Theanalysisuntilnowhasmodelledtheeffectofretirementasa

discretechangeincognitivefunctioningoccurringwithalag.

How-ever,thelengthofexposuretoretirementmayalsoaffectcognitive

functioning.In otherwords,retirementmayhave acumulative

effectandthiswouldimplythatcognitivefunctioningdependsnot

onlyonthestatusofworking/beingretiredbutalsoonthelengthof

theretirementperiod.ThispossibilityhasalsobeenraisedbyAdam

etal.(2007a)andMazzonnaandPeracchi(2010).Wethus

reformu-lateourIVapproachbytakingretirementdurationasendogenous

variableandtesttwospeciﬁcationswheretheeffectofretirement

durationiseitherassumedtobelinearorlogarithmic16_and_using

asinstrumentsthetimeperiodsincetheindividualreachedthe

ageof62yearsandthetimeperiodsincetheindividualreached

thenormalageofretirement,eitherinlinearorlogarithmic

speci-ﬁcation.

Tables3and4presentstheresultsofthemodelusingthelinear

andlogarithmicspeciﬁcation,respectively.Thecoefﬁcientestimate

ofretirementdurationforthelogarithmicspeciﬁcationis

nega-tiveandsigniﬁcantatthe5%-leveland supportsthehypothesis

thatretirementdurationmayalsoplayaroleintheevolutionof

cognitivedeclineatolderage.Regardingthelinearspeciﬁcation,

theIVestimateofthecoefﬁcientrelatedtoretirementdurationis

notsigniﬁcant,suggestingthatthedatadonotﬁtwiththelinear

speciﬁcation.

Asanillustration,wecomputethepredictedcognitivetestscore

usingourestimatesfromcolumn(iii)inTable3fortwo

hypotheti-calindividuals:oneindividualretiringat62yearsoldandtheother

oneretiringat65yearsold.Fig.3illustratestheevolutionof

cogni-tivefunctioningforthosetwoindividuals.Itshowsthatmostofthe

dropincognitivefunctioningoccursatthebeginningofretirement,

asaresultofthelogarithmicspeciﬁcation.Itthussuggeststhatthe

differenceincognitivefunctioningbetweentheearlyandthelate

retireesislikelytoberelativelysmallatlaterstageofthe

retire-mentperiod.Theseresultsthussupportourpreviousﬁndingsthat

mostofthedropincognitivefunctioningduetoretirementoccurs

16_Note_that,_in_order_to_take_into_account_the_differing_effect_of_retirement_on

cognitivefunctioning,wesetthelogarithmofretirementdurationtozerofor indi-vidualswhowerestillworkingorwhohadbeenretiredwithintheyear.Notealso thatoneunityhasbeenaddedtoretirementduration(andthetimeperiodsince theindividualreachedtheageof62years/thenormalageofretirement)before transformingittolog.

atthebeginningoftheretirementperiodandtendstostabilise

afterwards.

5.4. Robustnesschecks

5.4.1. Thedelayedeffectofretirementoncognitivefunctioning

Assuggested by Figs. 1 and 2, our main empirical analysis

assumesthattheretirementeffectoncognitivefunctioningislikely

tooccurwithadelay,eitherbecausetheenvironmentalchanges

do not affectinstantaneously cognitive functioning, orbecause

the“honeymoon”effect ofretirementmay attenuatethe

nega-tiveeffectofretirement.Ourmodelthusassumesthatcognitive

functioningremainsstableforindividualsretiredwithintheyear

(i.e.itassumesthatcognitivefunctioningofnewlyretired

individ-ualsisthesameasforworkers).Itishoweverpossiblethatthe

honeymooneffectprovidesaninstantpositiveboosttocognitive

functioning,perhapsbyanimmediatereductioninjobstress,that

wouldincreasethelevelofcognitivefunctioningabovethelevel

oftheworkers.Thispotentialeffectmayhaveconsequencesfor

ouridentiﬁcationstrategyasthecontrolgroupforthoseretiredfor

morethanoneyearisnotonlyworkersbutactuallyaweighted

averageofworkersandrecentlyretiredindividuals.Intheextreme

case,thenegativeandsigniﬁcanteffectofbeingretiredformore

thanoneyearfoundinourmodelmaysimplybeareturntothe

pre-retirementlevelsandnotareductionrelativetoworking.In

ordertotestforthispotentialbias,were-estimatedourmodeland

7 8 9 10 11 12 13 75 74 73 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51

Predicted cognitive score

Age

Retire at 62 years old Retire at 65 years old

Fig.3. Predictedageprofileofcognitivefunctioning.Note:Thisfigureillustratesthe effectofretirementoncognitivefunctioningoftwohypotheticalindividualswho onlydifferwithrespecttotheirretirementage.Theageprofilesarebasedonthe coefficientestimatesreportedincolumn(iii)ofTable3.

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Table3

Cognitivefunctioningandretirementduration(logarithmicspeciﬁcation).FE-IVestimates.

Log(retirementduration+1) Cognitivescore

Firststage(i) FE(ii) Reducedform(iii) IV(iv)

Log(retirement

duration+1)

– −0.138*** _– _–0.567**

(0.036) (0.238)

Instruments Log(yearssinceage 62+1)

0.135*** _– _–0.072* _–

(0.009) (0.039)

Log(yearssincenormal ageofretirement+1) 0.090*** _– _–0.059 _– (0.010) (0.047) Controls Age –0.118*** _0.418*** _0.370*** _0.309*** (0.012) (0.046) (0.063) (0.076) Age2 _0.015*** _−0.043*** _–0.039*** _−0.031*** (0.001) (0.004) (0.005) (0.008)

Within-R2 _0.523 _0.045 _0.045 _–

N 54,377 54,377 54,377 54,377

Table4

Cognitivefunctioningandretirementduration(linearspeciﬁcation).FE-IVestimates.

Retirementduration Cognitivescore

Firststage(i) Reducedform(ii) IV(iii)

Retirementduration – – −0.072

(0.127) Instruments

Yearssinceage62 0.120*** _−0.027 _–

(0.020) (0.023)

Yearssincenormalage ofretirement 0.120*** _0.006 _– (0.019) (0.021) Controls Age −1.333*** _0.367*** _0.284 (0.098) (0.137) (0.302) Age2 _0.132*** _−0.039*** _−0.031 (0.009) (0.012) (0.028)

Within-R2 _0.636 _0.045

N 54,377 54,377 54,377

Note:HealthandRetirementStudy1998–2008.Allrespondentswereagedbetween51and75.Robuststandarderrorsareinparentheses. *Meanthatthecoefﬁcientestimateissigniﬁcantlydifferentfromzeroatthe10%level.

**_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_5%_level. ***_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_1%_level.

includedasadditionalendogenousvariableadummyvariablethat

isequaltooneiftheindividualisretiredforlessthanoneyearand

zerootherwise.Therelatedinstrumentsareonedummyvariable

forbeing62year-old,andadummyvariableforbeingagedthe

ageofeligibilityforfullretirementbeneﬁts.Giventhisnew

spec-iﬁcation,thecontrolgrouponlyincludesworkingindividuals,the

dummyforbeingretiredwithintheyearcapturestheimmediate

effectofretirementoncognitivefunctioning,andthedummyfor

beingretiredformorethanoneyearcapturestheaverage

short-termeffectofretirement,themainvariableofinterest.Table5

presentstheresults.Thecoefﬁcientestimateofthedummyvariable

forbeingretiredwithinoneyearispositivebutwithlarge

stan-darderrorprecludinganyinterpretation.17_More_importantly,_the

17 _We_have_also_tested_this_{speciﬁcation}_for_the_model_that_uses_the_logarithm_of

retirementdurationinsteadofthedummyforbeingretiredformorethanoneyear

coefﬁcient estimate for being retired for more than one year

remains negativeandsigniﬁcant,andclosetoourmainresults,

although slightly lower in magnitude. Thisresult supports our

hypothesisthatretirementhasanegativeeffectoncognitive

func-tioningandthatthiseffectisunlikelytobeinstantaneous.18

Anotherrobustness check consistsin assessingthe

sensitiv-ityofourresultstothechoiceofthedelaybetweenretirement

anditsimpactoncognitivefunctioning.Fig.4presentsthe

coefﬁ-cientestimateoftheeffectofretirementoncognitivefunctioning

usingdifferentdelayperiodfrom0months(instantaneouseffect)

andfoundsimilarresultsasthosepresentedinTable3.Thoseresultsareavailable uponrequest.

18_This_provides_a_potential_explanation_for_the_{impreciseness}_of_Coe_and_Zamarro’s

(2011)IVestimateoftheeffectofretirementoncognitivefunctioningobtainedby applyingaregressiondiscontinuitydesignwherethethresholdpointsareset,atthe countrylevel,attheearlyandstatutoryretirementage.

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Table5

Cognitivefunctioningandretirement(controllingforthoseretiredwithintheyear).FE-IVestimates.

Retiredwithinayear Retiredforatleastoneyear Cognitivescore

Firststage(i) Firststage(ii) Reducedform(ii) IV(iii)

Working – – – –

Retiredwithintheyear – – – 0.330

(0.921)

year

– – – −0.846**

(0.373) Instruments

Being62yearsold 0.055*** _0.022*** _−0.022 _–

(0.007) (0.008) (0.059)

Beingthenormalageof retirement 0.022*** _0.027*** _0.030 _– (0.006) (0.007) (0.058) >62yearsold −0.004 0.110*** _−0.115** _– (0.005) (0.007) (0.051) >Normalageof retirement −0.012*** _0.079*** _−0.061 _– (0.004) (0.007) (0.050) Controls Age 0.036*** _0.017*** _0.461*** _0.460*** (0.003) (0.006) (0.048) (0.065) Age2 _−0.003*** _0.001** _−0.047*** _−0.045*** (0.000) (0.001) (0.004) (0.005)

Within-R2 _0.009 _0.242 _0.045 _–

N 54,377 54,377 54,377 54,377

Note:HealthandRetirementStudy1998–2008.Allrespondentswereagedbetween51and75.Robuststandarderrorsareinparentheses. *Meanthatthecoefﬁcientestimateissigniﬁcantlydifferentfromzeroatthe10%level.

**_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_5%_level. ***_Mean_that_the_coefficient_estimate_is_{significantly}_different_from_zero_at_the_1%_level.

to24monthspostretirement(themodelwiththedelayﬁxedat

12monthscorrespondstotheIVmodelpresentedinTable1).The

resultsshowthatthecoefﬁcientestimatesremainsigniﬁcantat

the5%-levelformostofthedelaychosen,evenfortheimmediate

effect.Howevertheeffectismoresalientwhenthedelayisﬁxedat

aboutoneyearafterretirement,thelargesteffectbeingidentiﬁed

-2 -1. 5 -1 -. 5 0 Bet a c oe ffic ie nt 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Number of months post retirement

Fig.4. Sensitivityanalysisonthedelayedeffectofretirementoncognitive func-tioning.Note:HealthandRetirementStudy1998–2008.Allrespondentswereaged between51and75.TheblackdotscorrespondtothepointestimatesoftheIV modeloftheeffectofretirementoncognitivefunctioning(Eq.(1))usingdifferent delayperiods(from0to24months)betweenretirementanditsimpactoncognitive functioning.Theverticalbarsrepresenttherespective95%conﬁdenceinterval.

foradelayof14months.19_Those_results_conﬁrm_that_the_effect_of

retirementoncognitivefunctioningislikelytooccurwithadelay

ofaboutoneyearpostretirement.

5.4.2. Othermeasuresofcognitivefunctioning

Ourresultsarebasedononesinglecognitivetask(i.e.ataskof

wordrecall),whichcallsintoquestionthegeneralisabilityofour

resultstothewholecognitivefunctioning.Nevertheless,itiswidely

recognisedthatwordrecalltestsinvolveabroadnetworkofbrain

regions(i.e.frontalregions,hippocampus,etc.;Desgrangesetal.,

1998;Tulving,2002)andthatthiskindoftaskismulti-determined,

i.e.itimpliesavarietyofothercognitivefunctionssuchaslanguage,

attentionandexecutivefunctioning(Tulving,2002).

Although HRS includes several other measures of cognitive

functionning,20_most_of_them_are_only_asked_to_individuals_being₆₅

year-oldorolderandthusarenotsuitedforourstudy.Thereis

how-everanothermeasureofcognitivefunctioningthatcanbeusedfor

ouranalysis.Thismeasureisbasedontheserial7subtractionfrom

100(uptoﬁvetimes):Individualsareaskedtosubtract7ﬁvetimes

from100.Thistestisaimedtoassessworkingmemory,i.e.the

abil-itytoactivelyholdinformationinthemindneededtodocomplex

taskssuchasreasoning,comprehensionandlearning.Themeasure

rangesfrom0to5.21_The_coefﬁcient_estimate_of_being_retired_for

oneyearormoreisnegativeandsigniﬁcantconﬁrmingour

pre-viousresults(coefﬁcientestimate:−0.279;standarderror:0.126).

19 _We_observe_that_the_coefﬁcient_estimate_tends_to_become_lower_in_magnitude

whenallowingforlongerdelaysbecausethecontrolgroupincludesthenindividuals thatarealreadyaffectedbycognitivedeclineduetoretirement.

20 _For_an_overview_of_the_available_measures_of_cognitive_functioning,_see_Fisher

etal.(2009).

21 _Note_that_we_treat_an_answer_as_correct_when_the_individual_correctly_subtracts

7fromthelastnumberhereported,notonlythetheoreticalone(itmeansthatif theindividualreported92intheﬁrstround,and85inthesecondround,thesecond answerisconsideredascorrect).

(10)

Furthermore,themagnitudeoftheeffectsonthewordrecalltest

andtheserial7subtractiontestareclosetoeachother:theeffect

onthenormalisedwordrecalltestscorecorrespondsto−0.278

(standarderror:0.100)whiletheeffectonthenormalisedserial7

subtractionscoreis−0.230(standarderror:0.104).22

5.4.3. Thesampleselection

Theanalyticalsampleexcludesindividualswhoareobserved

goingbacktoworkduringthesurvey period.Asa result,

non-workingindividualsinoursamplearethemostlikelytoﬁttothe

deﬁnitionofretirement:apermanentwithdrawalfromthelabour

force.Thesampleselectionmighthoweverleadtoaselectionbias

ifforexampleindividualsdonotﬁnda jobanymorebecauseof

theirlowercognitivefunctioning.However,thoseindividualsare

alsolikelytobemoreactivethanpermanentlyretiredindividuals

giventheyaremorelikelytoactivelylookforajob.Wewouldthus

expectthatthoseindividualsarelesslikelytobeaffectedduring

thistransitionperiod.Weperformedseveraltestsinordertocheck

thesensitivityofourresults.First,wekeepindividualsobserved

goingbacktoworkduringthesampleperiodanddeﬁnetheir

non-workingduration inthesamewayastheretiredindividuals.In

suchacase,theIVmodelsprovideestimatesthatareclosetoour

mainresultsforboththedummyestimates(coefﬁcientestimate:

−1.232;standarderror:0.380).andthelogofretirementduration

(coefﬁcientestimate:−0.798;standarderror:0.274)andshowthat

ourIVstrategyisinsensitivetotheselectedsampleweuseforour

mainresults.23

Theanalysisuntilnowhasdeﬁnedretirementasadummy

vari-ableforworkingornot.However,anindividualwhohasreduced

substantiallyhisworkinghoursandisonlyworkingafewhours

perweekmightalsoexperienceacognitivedecline.Asthose

indi-vidualsarestillrecordedasworkingaccordingtoourdeﬁnition,

thismightbiasupwardtheIVestimateoftheeffectofretirement

oncognitivefunctioning.Inordertocheckforthispossibilitywe

restrictthesampletoindividualswhoareworkingfulltimeby

droppingallindividualswhohavebeenobservedworking35hor

lessperweek,conditionalonworkingandperformedthe

analy-sis.Resultsarerobusttothissampleselectionconﬁrmingourmain

ﬁndings(coefﬁcientestimate:−0.810;standarderror:0.318).

6. Conclusion

Thispaperhasanalysedtheeffectofretirementoncognitive

functioning,measuredbya wordlearningand recalltest,using

longitudinaldataonolderAmericansfrom1998to2008(HRS).The

empiricalresultshighlightasigniﬁcantnegativecausalimpactof

retirementoncognitivefunctioning,inaccordancewiththe

ﬁnd-ingsofRohwedderandWillis(2010)andMazzonnaandPeracchi (2010).This negative effectremains even when controllingfor

individualheterogeneityandtheendogeneityof theretirement

decision. Weshow,by usingeligibility forsocial securityasan

instrumentforretirement,thatthisrelationshipisunlikelytobe

duetoreversecausality.Ourresultshighlightasigniﬁcantnegative

effectofretirementoncognitivefunctioning,closeto10%.Theyalso

suggestthattheeffectofretirementoncognitivefunctioningisnot

instantaneousbutappearswithalagandthismightthusprovide

anexplanationforthemixedﬁndingsfrompreviousstudies.

Ourresultsalsosuggestthat,althoughtheeffectofretirement

oncognitivefunctioningis notinstantaneous,mostof thedrop

22 _Results_are_available_upon_request.

23 _We_have_also_estimated_the_model_by_restricting_the_sample_to_individuals

reportingworkingorbeingfullyretiredandfoundsimilarresultsthanthose pre-sentedinthispaper.Resultsareavailableuponrequest.

occurs at the beginning of the retirementperiod and tendsto

stabiliseafterwards.Thisﬁndingthussuggeststhat,eventhough

reformsaimedatdelayingthelegalageofretirementcouldlead

tosomepositiveexternalitiesintermsofimprovedcognitive

func-tioning,weshouldnotexpectthatanincreaseinretirementage

willhavealargeimpactonthedependencyoftheelderly(i.e.the

long-termretired)becauseofcognitiveimpairmentatolderage.

Fromatheoreticalpointofview,alltheseresultssupportthe

dis-useperspective(Salthouse,1991),whichassumesthatdecreases

in activity patterns result in atrophy of cognitive skills, while

stimulating mentalactivities increase them(the “use itor lose

it” hypothesis), and suggest that retirement plays a signiﬁcant

roleinexplainingcognitivedeclineatolderage.However,further

studieswould benecessarytospecifytheeffectofprofessional

activitiesoncognition(andmoreparticularlyonmemory

func-tioning).Indeed,theﬁrstquestiontobeinvestigatediswhether

theimpactoftheretirementoncognitivefunctioningdependson

thetypeofprofessionalactivityundertakenwhileemployed:

phys-icalversusintellectualwork;lightversusheavyworkload;stressful

workornot.Forexample,somestudieshaveshownthat

intellec-tuallydemandingjobsduringadulthoodareassociatedwithbetter

cognitivefunctioninginlaterlife,whereasmanuallabouris

asso-ciatedwithworsecognitivefunctioning(Jormetal.,1998;Potter

etal.,2008).Asecondimportantquestionistodeterminewhether

therelationshipbetweenretirementandcognitionisdirectand/or

whetherthere aresomeintermediate variablesbetween

retire-ment and cognition. Indeed, work is known to increase social

interactionandasenseofself-efﬁcacy,bothvariablesbeing

consid-eredasimportantfactorscontributingtothemaintenanceofthe

cognitivereserve(RoweandKahn,1998).

Ourﬁndingshaveimplicationsthatgobeyondtheconsequences

ofretirementoncognitivefunctioning.Theyshowthatindividuals

havesomecontrolovertheevolutionoftheircognitivefunctioning

throughtheactivitiestheyundertakeandthusthatthereisscope

forpolicyinterventionstoaffectthepatternofcognitiveageing.

Theyprovidesupportforactiveageingpolicies,particularlyinthe

ﬁeldofparticipation.Letusindicateherethethreekeypolicy

pro-posalsinthisﬁeldhighlightedbytheWorldHealthOrganization

(WHO,2002):“(1)Provideeducationandlearningopportunities

throughout thelife course;(2)Recognizeand enabletheactive

participationofpeopleineconomicdevelopmentactivities,formal

andinformalworkandvoluntaryactivitiesastheyage,accordingto

theirindividualneeds,preferencesandcapacities;and(3)

Encour-agepeopletoparticipatefullyinfamilycommunitylife,asthey

growolder.”

Finally,itshouldbeemphasisedthatmemorylossand

demen-tia among the elderlyrepresent a major public health burden,

especiallyinthecurrentcontextofpopulationageing.Cognitive

impairments,eventhosenotreachingthethresholdfordementia

diagnosis,areassociatedwithalossofqualityoflife,increased

dis-ability,andhigherhealth-relatedexpenditures(Albertetal.,2002;

Ernstand Hay, 1997;Lyketsoset al.,2002;Tabertetal., 2002).

Ourﬁndingssuggestthatreformsaimedatpromotinglabourforce

participationatanolderagemaynotonlyensurethe

sustainabil-ityofsocialsecuritysystemsbutmayalsocreatepositivehealth

externalities.

Acknowledgments

The authorswould liketothankMeltemDaysal, Andriesde

Grip,ThomasDohmen,ArnaudDupuy,TobiasKlein,IzabelaJelovac,

Anne Laferrère,Olivier Marie, PierrePestieau, Suzann

Rohwed-der,MartinRossi,ArthurVanSoest,RobertWillis,GemaZamarro,