Investors who are dreaming of Freedom 55 should consider a heretical notion: Maybe early retirement isn't as valuable as we think.
There is evidence that staying on the job can reduce our risk of suffering from depression and physical ailments. And, despite what people often think, there is little reason to believe that leaving work early will result in a longer, healthier life.
This will come as a surprise to many readers, judging from the vociferous reaction I received to an earlier column that pointed out the substantial financial benefits of working longer.
Several people cited a supposed study by Boeing Co. that was said to indicate employees who retire at 65 die much sooner than those who retire early. The only problem? The company itself swears it's not true. "There is no correlation between age at retirement and life expectancy of Boeing employees," it says on a webpage debunking the myth.
The health impact of early retirement has become a hot political issue as governments around the world attempt to nudge retirement ages higher as a way to save money and offset the economic impact of aging populations in developed countries. In Canada, the federal government has tinkered with both Old Age Security and Canada Pension Plan to increase the allure of staying on the job.
It's safe to say that few of us relish the idea of toiling longer, but the evidence, at least so far, suggests a surprising thought, especially to those of us who are used to focusing solely on the financial questions around retirement. It seems that the big winners in the retirement stakes may not be those who escape the labour force early, but those who can keep on working, especially if it's at something they enjoy.
Rather than protecting us from an early grave, Freedom 55 can, in some cases, actually be associated with an increased risk of death, according to a 2005 survey of Shell Oil employees who retired at 55, 60 and 65 between 1973 and 2003. The study found that the earliest retirees had a higher mortality rate than those who quit work later.
Of course, the early deaths may be because those who retire at 55 are leaving work because of health problems. But the same study also found that the long-term survival of those who left work at a more normal retirement age of 60 was no better than those who retired at 65, suggesting that the findings aren't simply the result of people being forced out of the job market by poor health.
However you slice the Shell data, there seems to be no health benefit from early retirement.
There may, however, be a happiness dividend from continuing to work. A review of 10 studies of people who work beyond 65 by Will Maimaris, Helen Hogan and Karen Lock of the London School of Hygiene and Tropical Medicine found that none of the research showed any detrimental effect from working longer, while four of the surveys suggested that staying in the labour force boosts seniors' mental health and self-esteem.
The standard objection to such studies is that it's difficult to disentangle cause and effect: Does work make people happier or do happier people work longer?
A 2013 paper by Gabriel Sahlgren of the Institute of Economic Affairs in Britain addresses the problem by comparing the health of husbands and wives, who often tend to retire together but at different ages, to isolate the effects of not working. It concludes that there are "large negative health effects of retirement among both women and men." While the short-run effects of leaving work behind may be slightly positive, the long-run effects are large and worrisome.
Among the most striking findings in the study are that retirement increases the probability of suffering from clinical depression by about 40 per cent and boosts the chances of having at least one diagnosed physical condition by about 60 per cent.
To be sure, a note of caution is in order: So many studies have come to conflicting conclusions that it's wisest not to take any of them as gospel. Researchers typically note, quite sensibly, that health and happiness in retirement is strongly linked to health and happiness before retirement – quitting work won't turn a sickly grouch into a marathon-running optimist, or vice versa.
But health considerations aside, the financial benefits from working longer are hard to dispute. For instance, deferring your CPP benefits from 65 to 70 increases your monthly payout by 42 per cent. In addition, you gain from the increased time your investments have to compound and the reduced cost of financing a shorter retirement as well as any additional savings you may put away.