Everyone knows the financial arguments for why we should wait as long as possible to Social Security benefits: Your benefits increase by 8% for every year from age 62 to age 70 that you postpone claiming.
For those who have other sources of income during these years, increases this large are hard to beat.
But this financial argument, compelling as it is, misses an even more important reason to wait as long as possible before retiring: Those who work longer experience less cognitive decline. I don’t know about you, but that alone would convince me to postpone retirement even if there were no financial reason to do so.
This cognitive benefit of postponing retirement was documented by a study that was published in the September 2021 issue of SSM –Population Health, a peer-reviewed journal. Entitled “Does postponing 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 hastens cognitive decline. But actually proving it has remained elusive, since doing so requires teasing apart the interactions between myriad different factors and trying to determine cause and effect.
It might be, for example, that those who have more cognitive abilities in the first place will be employed in more cognitively-engaging jobs and want to work as long as possible. Though their cognitive functioning during their late 60s and early 70s will likely be greater than others of the same age who have retired, we don’t know whether that is because of their decision to continue working, or because their jobs are more cognitively engaging, or because they had more cognitive abilities in the first, or some other factor(s) altogether.
The authors of this new study employed a novel statistical technique, beyond the scope of this column, that is able to separate causes and effects. They applied the technique to data collected by the Health and Retirement Study (HRS) from the University of Michigan. The HRS data is based on a biennial survey of around 20,000 Americans over the age of 50.
The researchers found evidence of a strong cause-and-effect relationship between postponing retirement and improved cognitive function. Furthermore, they found that “postponed retirement is beneficial to cognitive function for all genders, races/ethnicities, educational levels, and regardless of professional or non-professional occupational status.”
Note carefully that the study isn’t saying that, if you or I postpone retirement, our cognitive functioning will actually increase. Their conclusion instead is that postponing retirement slows down the process of cognitive decline that occurs as we age. So the improved cognitive function that the study finds associated with working longer is in relative terms—relative to those who retire.
This study’s conclusions dovetail with other research about which I’ve written before. That other research found a marked increase in mortality among men who choose to begin receiving their Social Security benefits at the earliest possible age of 62.
Also relevant are the findings of another study I’ve written about before that focused on what happened in the Netherlands when the tax code was changed to incentivize working beyond age 62. The authors found that this change led to an increase in life expectancy by as much as two years, on average.
Frankly, I am surprised that this recent study hasn’t received more attention in the retirement financial planning community. The only mention I’ve seen of it in the investment arena was in a recent issue of the Journal of the American Association of Individual Investors.
Regardless, though, the implication is clear: When thinking about whether and when to retire, we need to focus on more than financial health alone.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.