Understanding the health consequences of retirement is important, as many developed countries have already started raising state pension eligibility age, with the intention to induce postponed retirement. This paper estimates the causal effect of retirement on the health outcomes of older women in Australia, utilising the exogenous variation in retirement induced by the change in age eligibility for the Australian Age Pension. Using a sample of 19,185 observations for 3771 women from waves 2001-2011 of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, we show that retirement status has positive and significant effects on women's self-reported health, physical and mental health outcomes. We also find that longer time spent in retirement confers clear additional health benefits. We show that retirement affects physical and mental health in diverse ways and that the estimated positive health effects of retirement are coincidental with increased post-retirement physical activity and reduced smoking. Our finding that retirement can improve health suggests that the welfare losses from working life prolongation policies will be larger than currently though when we include the cost of the foregone health improvements.
Keywords: Age Pension; Australia; Health behaviours; Retirement; Women's health.
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