This paper uses longitudinal test data to analyze the relation between retirement and cognitive development. Controlling for individual fixed effects, we find that retirees face greater declines in information processing speed than those who remain employed.
However, remarkably, their cognitive flexibility declines less, an effect that appears to be persistent 6 years after retirement. Both effects of retirement on cognitive development are comparable to those of a five to six-year age difference. They cannot be explained by (1) a relief effect after being employed in low-skilled jobs, (2) mood swings or (3) changes in lifestyle. Controlling for changes in blood pressure, which are negatively related to cognitive flexibility, we still find lower declines in cognitive flexibility for retirees. Since the decline in information processing speed after retirement holds particularly for the low educated, activating these persons after retirement could lower the social costs of an aging society