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Subjective Well-Being Around Retirement

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Abstract

This paper studies the effect of both retirement and unemployment on life satisfaction, using subjective satisfaction indicators from the German Socio-Economic Panel. Moreover, we analyze how accurate individuals anticipate changes in satisfaction around retirement, as well as the correlation between the forecast error in life satisfaction and the labor market status. Being unemployed has a significant negative effect on life satisfaction; (in)voluntary retirement on the other hand has no significant effect on life satisfaction. A new finding is that unemployed individuals underestimate future life satisfaction. That is, their current labor market status has temporary negative effects on well-being, but, after 5 years, individuals are happier with their life than previously anticipated. We find no effects of (in)voluntary retirement on the forecast error.

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Notes

  1. Mastrogiacomo (2004) analyzes expectations and realizations of households’ financial situation around retirement.

  2. Wagner et al. (1993) and Wagner et al. (2007) provide a description of the GSOEP. It is sponsored by the Deutsche Forschungsgemeinschaft and administered by the German Institute for Economic Research (Berlin) and the Center for Demography and Economics of Aging (Syracuse University).

  3. Notice that we have applied less stringent sample selections than Bonsang and Klein (2012): in their empirical analysis they do not consider women nor inhabitants of former Eastern Germany and members of the high income subsample.

  4. Frijters et al. (2002) checked for and confirmed the robustness of the OLS results by undertaking an ordered probit analysis.

  5. The group of the voluntary unemployed is very small. We therefore lump them together with the voluntary retired.

  6. Since we estimate linear models, we implicitly assume that (expected) life satisfaction responses and the forecast error can be treated as continuous variables. Ferrer-i Carbonell and Frijters (2004) and Frijters et al. (2009) have also estimated ordered probit models with Mundlak term in order to investigate the sensitivity of this assumption. We also checked this. This analysis typically suggests that ordered response and linear models lead to similar conclusions.

  7. Although our explanatory variables include some objective health characteristics to proxy for health shocks, this assumption might be too strong, since the employment status variables might be correlated with the idiosyncratic error term \(u_{it}\). Bonsang and Klein (2012) address this concern in a sensitivity analysis in which they instrument the retirement variables by eligibility ages and by plant closures. They find that their IV results are rather qualitatively similar to the FE results. Given their findings, we abstain from such a sensitivity analysis.

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Acknowledgments

The authors thank Viola Angelini, Jan van Ours and Peter van Santen for their valuable comments.

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Authors and Affiliations

  1. Nijmegen School of Management, P.O. Box 9108, 6500 HK , Nijmegen, The Netherlands

    Marzieh Abolhassani

  2. Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

    Rob Alessie

  3. Netspar, Tilburg, The Netherlands

    Rob Alessie

Authors
  1. Marzieh Abolhassani
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  2. Rob Alessie
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Correspondence to Rob Alessie.

Additional information

The data used in this publication were made available to us by the German Socio-Economic Panel Study (SOEP) at the German Institute for Economic Research (DIW), Berlin.

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Abolhassani, M., Alessie, R. Subjective Well-Being Around Retirement. De Economist 161, 349–366 (2013). https://doi.org/10.1007/s10645-013-9209-1

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