Differentiating Retirement Age to Compensate for Health Differences

Abstract

Population ageing in Europe calls for an overall rise of the age of retirement. However, most observers agree that the latter should be differentiated to account for individuals' heterogeneous health when they grow older. This paper explores the relevance of this idea using European SHARE panel data. It first quantifies the health gradient across European countries, and within each of them across sociodemographic groups (i.e. genderXeducation) at typical retirement age. It then estimates the degree of retirement age differentiation that would be needed to equalise expected health at the moment of retirement. Results point at the need of a very high degree of differentiation to equalise expected health, across and within European countries. But the paper also shows that systematic retirement age differentiation would fail to match a significant portion of the full distribution of health status. In a world synonymous with systematic health-based retirement age differentiation, there would still be a lot of what health economists call F-mistakes ([F]ailure of treatment ie. no retirement for people in poor health) and E-mistakes ([E]xcessive treatment ie. people in good health going for retirement).