Almost a million people in Britain are now working past the age of 65 according to official figures showing record numbers shunning the prospect of retirement.
Research by the the Institute of Economic Affairs found that both mental and physical health can suffer, and that the Government should help people work longer and raise the state pension ages.
The study - Work Longer, Live Healthier: The Relationship Between Economic Activity, Health And Government Policy - shows there is a small boost in health immediately after retirement but that, over the longer term, there is a significant deterioration.
It suggests retirement increases the likelihood of suffering from clinical depression by 40 per cent and the chance of having at least one diagnosed physical condition by about 60 per cent.
The probability of taking medication for such a condition rises by about 60 per cent as well, according to the findings. People who are retired are 40 per cent less likely than others to describe themselves as being in very good or excellent health.
The length of time spent in retirement can also cause further disadvantages, the study found.
It argues, controversially, that if the Government pushed up the pension age and removed other red tape discouraging older people from taking on jobs, it would not only boost the economy but make people happier and healthier for longer.