Research Paper No.19

Old-age workers transition into retirement and risk of poverty

This study examines the probability of old-age workers transitioning into retirement and the risk of poverty that may accompany it. We use data from the Survey of Health, Ageing and Retirement in Europe (SHARE) for 25 European Union Member State countries collected over eight waves ranging from 2004 to 2019/2020. To estimate the drivers behind the transition into retirement, we consider two models: a pooled Logit with clustered standard errors at the individual level and a random-effects panel Logit model with robust standard errors. We find that factors such as education, household size, health status, marital status, type of employment, and additional working household members are associated with the probability of transition into retirement. In a second approach, we estimate the effect of transitioning into retirement on one’s risk of poverty, adopting the country- and year-specific statutory retirement age as an instrumental variable. Results indicate that workers who transition to retirement are less likely to fall into poverty than those who keep working. Our findings show the opposite of studies documenting a higher risk of poverty for the overall population of retirees, likely due to a combination of pension system characteristics, longer life expectancy, higher savings, and participation in social assistance programmes. Heterogeneity analysis by gender suggests that women face a greater likelihood of falling into poverty when transitioning into retirement but less so because of their previous poverty status, while the opposite is found for men.