BACKGROUND: Governments need to increase the proportion of the population in work in most developed countries because of ageing populations. We investigated longitudinally how self-perceived health is affected by work and retirement in older workers. METHODS: We examined trajectories of self-rated health in 14 714 employees (11 581 [79%] men) from the French national gas and electricity company, the GAZEL cohort, for up to 7 years before and 7 years after retirement, with yearly measurements from 1989 to 2007. We analysed data by use of repeated-measures logistic regression with generalised estimating equations. FINDINGS: Overall, suboptimum health increased with age. However, between the year before retirement and the year after, the estimated prevalence of suboptimum health fell from 19.2% (95% CI 18.5-19.9) to 14.3% (13.7-14.9), corresponding to a gain in health of 8-10 years. We noted this retirement-related improvement in men (odds ratio 0.68, 95% CI 0.64-0.73) and women (0.74, 0.67-0.83), and across occupational grades (low 0.72, 0.63-0.82; high 0.70, 0.63-0.77), and it was maintained throughout the 7 years after retirement. A poor work environment and health complaints before retirement were associated with a steeper yearly increase in the prevalence of suboptimum health while still in work, and a greater retirement-related improvement; however, people with a combination of high occupational grade, low demands, and high satisfaction at work showed no such retirement-related improvement. INTERPRETATION: These findings suggest that the burden of ill-health, in terms of perceived health problems, is substantially relieved by retirement for all groups of workers apart from those with ideal working conditions, and that working life for older workers needs to be redesigned to achieve higher labour-market participation. FUNDING: Swedish Council for Working Life and Social Research, Academy of Finland, INSERM (France), BUPA Foundation (UK), European Science Foundation, and Economic and Social Research Council (UK).