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Wealth Shocks and Retirement Timing: Evidence from the Nineties

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  • Purvi Sevak

    (Hunter College)

Abstract

This paper explores whether the timing of retirement responds to unexpected changes in wealth. Although the normality of leisure is a standard assumption in economic models, econometric support for it has not been consistent. The period of the 1990s allows a reexamination of this question because of the large and unexpected capital gains realized by many households. Using the 1992 to 1998 waves of the Health and Retirement Study, and two different identification strategies, I find evidence consistent with the theoretical expectations of wealth effects. Difference-in-differences estimates suggest that a $50,000 wealth shock would lead to a 1.9 percentage point increase in retirement probability among individuals ages 55 to 60. Estimates using panel data on savings and wealth find the elasticity of retirement flows between 1996 and 1998 with respect to wealth is between 0.39 and 0.50 for men.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp027.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp027.

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Length: 53 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:mrr:papers:wp027

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References

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Citations

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Cited by:
  1. Lucie Schmidt & Purvi Sevak, 2006. "Gender, Marriage, and Asset Accumulation in the United States," Department of Economics Working Papers 2006-06, Department of Economics, Williams College.
  2. 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.
  3. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
  4. Courtney C. Coile & Phillip B. Levine, 2004. "Bulls, Bears, and Retirement Behavior," NBER Working Papers 10779, National Bureau of Economic Research, Inc.
  5. Jeffrey R. Brown & Courtney C. Coile & Scott J. Weisbenner, 2010. "The Effect of Inheritance Receipt on Retirement," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 425-434, May.
  6. Coile Courtney C & Levine Phillip B, 2011. "The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-42, April.
  7. Julia Lynn Coronado & Maria Perozek, 2003. "Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s," Finance and Economics Discussion Series 2003-20, Board of Governors of the Federal Reserve System (U.S.).
  8. Matthew D. Shapiro, 2010. "The Effects of the Financial Crisis on the Well-Being of Older Americans: Evidence from the Cognitive Economics Study," Working Papers wp228, University of Michigan, Michigan Retirement Research Center.
  9. Julie Zissimopoulos & Nicole Maestas & Lynn A. Karoly, 2007. "The Effect of Retirement Incentives on Retirement Behavior: Evidence from the Self-Employed In the United States and England," Working Papers 528, RAND Corporation Publications Department.
  10. Gabor Kezdi & Purvi Sevak, 2004. "Economic Adjustment of Recent Retirees to Adverse Wealth Shocks," Working Papers wp075, University of Michigan, Michigan Retirement Research Center.
  11. 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.
  12. Purvi Sevak & Lucie Schmidt, 2011. "Macroeconomic Conditions and Updating of Expectations by Older Americans," Working Papers wp259, University of Michigan, Michigan Retirement Research Center.
  13. Paul Marmora & Moritz Ritter, 2014. "Unemployment and the Retirement Decisions of Older Workers," DETU Working Papers 1401, Department of Economics, Temple University.
  14. Barrett, Alan & Mosca, Irene, 2012. "Announcing an Increase in the State Pension Age and the Recession: Which Mattered More for Expected Retirement Ages?," IZA Discussion Papers 6325, Institute for the Study of Labor (IZA).
  15. Brooke Helppie McFall, 2011. "Crash and Wait? The Impact of the Great Recession on the Retirement Plans of Older Americans," American Economic Review, American Economic Association, vol. 101(3), pages 40-44, May.
  16. MacDonald, Bonnie-Jeanne & Cairns, Andrew J.G., 2011. "Three retirement decision models for defined contribution pension plan members: A simulation study," Insurance: Mathematics and Economics, Elsevier, vol. 48(1), pages 1-18, January.
  17. Hui Shan, 2008. "Property taxes and elderly labor supply," Finance and Economics Discussion Series 2008-51, Board of Governors of the Federal Reserve System (U.S.).

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