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What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population

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  • Alan L. Gustman
  • Thomas L. Steinmeier
  • Nahid Tabatabai

Abstract

This paper investigates the effect of the current recession on the retirement age population. Data from the Health and Retirement Study suggest that those approaching retirement age (early boomers ages 53 to 58 in 2006) have only 15.2 percent of their wealth in stocks, held directly or in defined contribution plans or IRAs. Their vulnerability to a stock market decline is limited by the high value of their Social Security wealth, which represents over a quarter of the total household wealth of the early boomers. In addition, their defined contribution plans remain immature, so their defined benefit plans represent sixty five percent of their pension wealth. Simulations with a structural retirement model suggest the stock market decline will lead the early boomers to postpone their retirement by only 1.5 months on average. Health and Retirement Study data also show that those approaching retirement are not likely to be greatly or immediately affected by the decline in housing prices. We end with a discussion of important difficulties facing those who would use labor market policies to increase the employment of older workers.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.1.161
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 24 (2010)
Issue (Month): 1 (Winter)
Pages: 161-82

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Handle: RePEc:aea:jecper:v:24:y:2010:i:1:p:161-82

Note: DOI: 10.1257/jep.24.1.161
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References

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  1. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, May.
  2. David A. Wise, 2004. "Introduction to "Perspectives on the Economics of Aging"," NBER Chapters, in: Perspectives on the Economics of Aging, pages 1-16 National Bureau of Economic Research, Inc.
  3. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 439-57, October.
  4. Chan, Sewin & Stevens, Ann Huff, 2001. "Job Loss and Employment Patterns of Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 484-521, April.
  5. Courtney Coile & Phillip B. Levine, 2009. "The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement," NBER Working Papers 15395, National Bureau of Economic Research, Inc.
  6. Alan L. Gustman & Thomas L. Steinmeier, 2002. "Retirement and the Stock Market Bubble," NBER Working Papers 9404, National Bureau of Economic Research, Inc.
  7. Michael D. Hurd & Monika Reti & Susann Rohwedder, 2009. "The Effect of Large Capital Gains or Losses on Retirement," NBER Chapters, in: Developments in the Economics of Aging, pages 127-163 National Bureau of Economic Research, Inc.
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Cited by:
  1. Jingjing Chai & Raimond Maurer & Olivia S. Mitchell & Ralph Rogalla, 2011. "Lifecycle Impacts of the Financial and Economic Crisis on Household Optimal Consumption, Portfolio Choice, and Labor Supply," Working Papers wp246, University of Michigan, Michigan Retirement Research Center.
  2. Hubener, Andreas & Maurer, Raimond & Mitchell, Olivia S., 2013. "How family status and social security claiming options shape optimal life cycle portfolios," CFS Working Paper Series 2013/07, Center for Financial Studies (CFS).
  3. Joan Kahn & Frances Goldscheider & Javier García-Manglano, 2013. "Growing Parental Economic Power in Parent–Adult Child Households: Coresidence and Financial Dependency in the United States, 1960–2010," Demography, Springer, vol. 50(4), pages 1449-1475, August.
  4. John Y. Campbell & Howell E. Jackson & Brigitte C. Madrian & Peter Tufano, 2011. "Consumer Financial Protection," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 91-114, Winter.
  5. Lane Kenworthy & Timothy Smeeding, 2013. "GINI Country Report: Growing Inequalities and their Impacts in the United States," GINI Country Reports united_states, AIAS, Amsterdam Institute for Advanced Labour Studies.
  6. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2010. "Does Stock Market Performance Influence Retirement Intentions?," NBER Working Papers 16211, National Bureau of Economic Research, Inc.
  7. Davies, James B. & Yu, Xiaoyu, 2013. "Impacts of Cyclical Downturns on the Third Pillar of the RIS and Policy Responses," CLSSRN working papers clsrn_admin-2013-20, Vancouver School of Economics, revised 29 Apr 2013.
  8. Jeffrey P. Thompson & Timothy M. Smeeding, 2013. "Inequality and poverty in the United States: the aftermath of the Great Recession," Finance and Economics Discussion Series 2013-51, Board of Governors of the Federal Reserve System (U.S.).

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