How Does Retirement Impact Elderly Health: What Role Does Social Network Play?

In US, by 2020, there will be more Americans over the age of 65 than under 15 years old. Population aging will inevitably lead to increasing burden to health services and Social Security. Therefore, the most direct and effective policies are those targeting elderly health promotion and delaying or mitigating aging health impacts. One of the biggest transitions in life as people aged is retirement since social contacts are a side product of employment that help workers to be mentally and physically active (Börsch‐Supan and Schuth 2014). However, relatively few economics studies have addressed this question instead majority of attentions are on the health impact on retirement decisions. Moreover, there are no unified views on the impact of retirement on various aspects of health within the limited literature (Coe and Lindeboom, 2008, Coe and Zamarro, 2011, Insler, 2014, Dave et al., 2008, Behncke, 2012, Sahlgren, 2012).

A fundamental empirical challenge in identifying causal effects of retirement on health is the endogeneity of retirement due to potential reverse causality.The most common instrumental variable used is the official retirement age however it is limited in its correlation with actual retirement status (i.e., weak instrument problem). Furthermore, in order to examine different degree of retirement influences (i.e., fully retirement, partial retirement etc.) we need more instruments to satisfy the identification conditions. Hence, this study will develop a structural model of retirement decision that considers health production function, social capital accumulation and time and money resource allocation. The model will not only provide theoretical guidance in the search of good instruments but also will enable us to paint the health influencing pathways of different degree of retirement. Specifically, we will examine the following questions: First, the effect of retirement on health outcomes (physical and mental). Second, the effect of retirement on social network. Third, the mediation effect of social network on the retirement’s health impact.

We use a newly released nationally representative longitudinal data: The National Social Life, Health, and Aging Project (NSHAP) dataset. This is a population-based panel study of different health outcomes and social life of adults aged 57-85 years.

Preliminary results utilizing temporal exogeneity suggest that the influence of prior retirement status has statistically significant negative effects on individual’s health outcomes (both physical and mental health) and prior partial retirement status results in relatively less negative impact on subsequent period’s depression symptoms. The social network density and size are showing expected signs and significance in the retirement decisions and mediating health outcomes. We are expected to have the structural equation estimation results ready before the meeting and those structural parameters will help identify the most effective policy target and subgroups aiming at improving elderly health.