New research strengthens link between mental health and retirement savings

August 29, 2017, Medica Research Institute

The question of how mental health status affects decisions regarding retirement savings is becoming a pressing issue in the United States. Key factors contributing to this issue include the tenuous state of the Social Security system, greater use of defined-contribution pension plans by employers, longer lifespans, and the rise of depression and other mental health issues in older Americans.

In the latest edition of the journal Health Economics, researchers Vicki Bogan of Cornell University and Angela Fertig, research investigator at Medica Research Institute, find that have a large and significant negative effect on retirement savings.

"A growing number of households are dealing with mental health issues like depression and anxiety," says Fertig. "Our project studies the effect that have on retirement savings because we need to understand how health problems may affect the economic security of this growing population."

The researchers found that is associated with:

  • up to a 62 percent lower probability of holding retirement accounts
  • $15,000 less held in retirement savings accounts by single households and $42,000 less held by married couples
  • up to a 47 percent higher probability that married couples withdraw from their retirement accounts

The results are generally consistent across single and married households. However, the study found some evidence to indicate that singles with psychological distress may divert funds away from retirement accounts, while married individuals with psychological distress may withdraw more from their retirement accounts. The study did not find evidence indicating that psychological distress affects retirement savings behavior through financial literacy or cognitive limitations.

The effect sizes found are large, suggesting that more employer management and government regulation of defined-contribution pension plans, IRAs, and Keogh retirement accounts may be warranted.

"The magnitude of these effects underscores the importance of employer management policy and government regulation of these accounts to help ensure households have adequate retirement savings," says Fertig. "Better understanding the link between and decisions could inform policy interventions that may encourage households to save sufficient funds for retirement through defined contribution plans and shape national changes to the defined contribution plan withdrawal penalties."

Explore further: Regardless of income and age, best investment strategy is to diversify

More information: Mental health and retirement savings: Confounding issues with compounding interest. Health Economics (2017). DOI: 10.1002/hec.3579

Related Stories

Some women's retirement plan: Rely on Prince Charming

June 22, 2016

Women workers often rely on future spouses to organize their retirement finances, rather than making independent decisions now. Men and women working for private Japanese companies make decisions about their retirement savings ...

'Credit Crunch' Will Hit Retirees in Unequal Ways

October 9, 2008

(PhysOrg.com) -- How severely retirees will be affected by the continuing financial crisis and subsequent "credit crunch" depends to a considerable extent on the kinds of retirement plans they rely on for retirement income, ...

Recommended for you

A statistical look at the probability of future major wars

February 22, 2018

Aaron Clauset, an assistant professor and computer scientist at the University of Colorado, has taken a calculating look at the likelihood of a major war breaking out in the near future. In an article published on the open ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.