Everyone knows the financial arguments why we should wait as long as possible for Social Security benefits: Your benefits increase by 8% for every year from age 62 to 70 that you delay claiming.
For those with other sources of income during these years, such large increases are hard to beat.
This cognitive benefit of postponing retirement was documented by a study published in the September 2021 issue of SSM – Population Health, a peer-reviewed journal. Entitled “Does Delaying Retirement Affect Cognitive Function?” Its authors, from the Max Planck Institute for Demographic Research in Rostock, Germany, are Joe Mhairi Hale, Maarte Bijlsma and Angelo Lorenti.
Many have suspected for years that retirement accelerates cognitive decline. But in fact, proving it has remained elusive, as it requires disentangling the interactions between a myriad of different factors and trying to determine cause and effect.
For example, those with more cognitive skills in the first place may have more cognitively engaging jobs and want to work as long as possible. While their cognitive functioning in their late 60s and early 60s is likely superior to other people of the same age who have retired, we do not know if this is due to their decision to continue working. , or because their work is more cognitively engaging, or because they had more cognitive ability in the first factor, or whatever.
The authors of this new study used a new statistical technique, beyond the scope of this column, which is able to separate cause and effect. They applied the technique to data collected by the University of Michigan Health and Retirement Study (HRS). The HRS data is based on a biennial survey of approximately 20,000 Americans over the age of 50.
Researchers found evidence for a strong cause-and-effect relationship between postponing retirement and improving cognitive function. In addition, they found that “delayed retirement benefits cognitive function for all genders, races / ethnicities, education levels and regardless of work or non-work status.”
Note that the study does not say that if you or I postpone retirement, our cognitive functioning will actually increase. Rather, their conclusion is that postponing retirement slows down the process of cognitive decline that occurs with age. Thus, the improvement in cognitive function that the study finds associated with longer labor is in relative terms, compared to those who retire.
The findings of this study are consistent with other research I have written about before. This other research found a marked increase in mortality among men who choose to start receiving their Social Security benefits as early as possible, at age 62.
Findings from another study I have written previously that focused on what happened in the Netherlands when the tax code was changed to encourage people to work beyond 62 are also relevant. The authors found that this change resulted in an increase in life expectancy of up to two years on average.
Frankly, I’m surprised this recent study hasn’t received more attention in the financial retirement planning community. The only mention I saw of it in the investment field was in a recent issue of Journal from the American Association of Individual Investors.
Either way, the implication is clear: When we think about whether and when to retire, we need to focus on more than just financial health.
Mark Hulbert is a regular contributor to MarketWatch. Its Hulbert Ratings tracks investment newsletters that pay a fixed fee to be audited. He can be contacted at [email protected].