Health and Retirement: New Evidence from Public Sector Employees

Increases in longevity have created serious concerns about the sustainability of employer-provided defined benefit pension plans and public programs such as Social Security and Medicare. One solution is to extend the working life of individuals. However, workers in poor health may not be able to work longer or may be less sensitive to financial incentives to extend working life. This paper investigates if poor health alters workers’ responsiveness to financial incentives to retire at certain age and years of service combinations. Retirement decisions are modeled using a panel dataset on public sector workers in North Carolina. We link information on benefit claims and actual financial incentives from administrative records to individual survey responses on health status to study the retirement timing decision. The findings will inform whether policies aimed at incentivizing later retirements may be hampered by the poor health of some workers.