Products January 3, 2012

Retiree Health Benefits Could Encourage Early Retirement

Research indicates that having employer-sponsored retiree health benefits could encourage workers to retire before age 65.
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A working paper from the National Bureau of Economic Research (NBER) says its study found retiree health coverage has its strongest effects at ages 62 and 63, resulting in a 3.7 percentage point (21.2%) increase in the probability of turnover at age 62 and a 5.1 percentage point (32.2%) increase in the probability of turnover at age 63. It has a more modest effect for individuals under the age of 62.   

According to the paper, a more generous employer contribution of 50% or more raises turnover by one to three percentage points at ages 56-61, by 5.9 percentage points (33.7%) at age 62, and by 6.9 percentage points (43.7%) at age 63. Overall, an employer contribution of 50% or more reduces the total number of person-years worked between ages 56 and 64 by 9.6% relative to no coverage.  

NBER researchers investigated the impact of retiree health insurance on early retirement using employee-level data from 64 diverse firms that are clients of Towers Watson.  

The working paper is available for purchase at http://www.nber.org/papers/w17703.  

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