Does It Matter How You Retire? Old-Age Retirement Routes and Subjective Economic Well-Being

Abstract

the main finding being old-age people's paradoxically high financial satisfaction with relatively low income levels (Hansen, Slagsvold, & Moum, 2008). These studies are mainly crosssectional, which leaves unanswered many of the questions on how changes over time, such as retirement and ageing combined with income change affect financial satisfaction. Retirement has been hypothesized as causing either more or less deprivation than the changes in income would lead one to suspect (Berthoud, Blekesaune, & Hancock, 2009). According to the traditional line of thought, retirement occurs from full-time work to full-time old-age retirement. In reality the transition into old-age retirement takes place through different pathways. Most people in European countries transit from work into old-age retirement between the ages of 50 to 69. But for one in five the path is different, either because they transit into retirement from other statuses or do not actually consider themselves to be retired. (Eurostat, 2015). Older people's decision to withdraw from the labour market is shaped by the institutional setting of social protection domains (pensions, disability and employment), but also by individual and contextual factors (Debrand & Sirven, 2009), creating "pull" and "push" incentives for retirement (e.g. Hofäcker & Unt, 2013). The exit pathways from the labour market are shown to affect short-term life satisfaction (Wetzel, Huxhold, & Tesch-Römer, 2016), but the route in itself has not shown any independent effects on post-retirement health (Halleröd, Örestig, & Stattin, 2013) or later life overall (Hyde, Ferrie, Higgs, Mein, & Nazroo, 2004). Against this background, it is also essential to specify the association between retirement routes and financial satisfaction. This study explores the effect of retirement on individuals' subjective economic well-being in European countries. We distinguish between three different retirement routes, measured with preceding basic activity statuses. The study focuses on the experiences of those who worked and of those who were unemployed before retirement. People with different labour market statuses generally enjoy different levels of well-being, and retirement might have adverse consequences in relation to income level changes and perceived income adequacy. The goal is to find out how different retirement routes are associated with the perceived income adequacy and whether possible differences can be explained with different levels of income change. Retirement is analysed with EU-Silc panel data using individual fixed-effect models. Results are indicative of the short-term effects of different retirement pathways on subjective economic well-being. The following sections present, firstly, the relevant literature on the subject; secondly, the aim of the study, data, measures and methods; thirdly, the results; and finally, a conclusion and discussion of the results.

Does Retirement Lead to Life Satisfaction? Causal Evidence from Fixed Effect Instrumental Variable Models

“…To this end, our findings are largely consistent with that in a German study by Bonsang & Klein (2012) who use a FE model to report that retirement has a positive impact on Free time satisfaction, a negative impact on household income satisfaction and an insignificant effect on Life satisfaction. Our FE finding is also in line with FE results of a negative relationship between retirement and income satisfaction in an European study by Palomäki (2019). As noted in section 3, while the FE model helps remove time-invariant individual characteristics, it cannot deal with problems associated with reversed causality and measurement errors.…”

“…These findings are also supported by another German study by Abolhassani & Alessie (2013) who use the same method and data to look at the retirement effect on wellbeing of both males and females. Other studies also use a FE model and data from various European countries to show that retirement is associated with lower levels in income satisfaction (Palomäki 2019) or life satisfaction (Sohier et al 2020). 5 To draw a causal effect of retirement on life satisfaction, three studies in this literature employ an instrumental variable method, using retirement age eligibility as instrument (Horner 2014;Kesavayuth et al 2016;Gorry et al 2018).…”

Poverty, the worst form of violence: perceived income adequacy among Croatian citizens

“…Perceived income adequacy represents subjective measure of income and has been found to represent a robust indicator of objective economic status, as well as valid measure of one's financial capacity (Grable et al, 2013;Litwin & Sapir, 2009). It is also addressed in the literature as a measure of subjective well-being (Bartolini, Bilancini, & Sarracino, 2013;Chan, Ofstedal, & Hermalin, 2002;Cracolici, Giabona & Cuffaro, 2014;Cracolici, Giambona, & Cuffaro, 2012;Hazelrigg & Hardy, 1997;Litwin, 2009;Palom€ aki, 2017Palom€ aki, , 2019, self-rated economic status (Litwin & Sapir, 2009), subjective income security (Ballantyne & Marshall, 2001) and financial satisfaction (Stoller & Stoller, 2003). Previous studies found perceived income adequacy more meaningful in assessing individual's financial capacity than the actual income.…”

“…Furthermore, self-reported health status exhibits a strong positive relationship with subjective income adequacy. Adults who assess their health more positively were more likely to be satisfied with their income status (Ballantyne & Marshall, 2001;Chan et al, 2002;Cracolici et al, 2012;Gildner et al, 2019;Hazelrigg & Hardy, 1997;Hsieh, 2003;Li et al, 2011;Palom€ aki, 2017Palom€ aki, , 2019Stoller & Stoller, 2003).…”

Explanations for economic difficulties among old-age pensioners previously on disability pension

“…Earlier studies have found a clear association between subjective economic difficulties and incomes. 10,11 In Finland, earnings-related disability pension accrues from a person's insured work history, and it also includes the projected pension component that compensates for the loss of income from the time of disability retirement to reaching the old-age retirement age. 12 Thus, disability retirement does not necessarily mean low pension income if one's earnings were high before the disability.…”