Mental Health and Retirement Savings: Confounding Issues with Compounding Interest

Abstract

The questionable ability of the U.S. pension system to provide for the growing elderly population combined with the rising number of people affected by depression and mental health problems magnifies the need to understand how household characteristics affect retirement. Mental health problems have a large and significant negative effect on retirement savings. Psychological distress decreases the probability of holding retirement accounts between 4 percent and 15 percent. Mental health problems can decrease retirement savings as a share of financial assets by over 40 percent. The magnitude of these effects suggests changes to employer management and government regulation of these accounts may be necessary.