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At the Corner of Main and Wall Street: Family Pension Responses to Liquidity Change and Perceived Returns

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Author Info

  • Thomas Bridges

    (University of Michigan)

  • Frank Stafford

    (University of Michigan)

Abstract

The U. S. economy experienced a shift away from employment with coverage under a defined benefit (DB) pension plan during 1991-2009. Defined contribution (DC) plan coverage seems not to have risen much, if at all, for married men in the recent decade. Overall, the percent of the labor force covered by any pension type fell over the period 2001-2009, with most of the shift occurring in 2001-2003, as indicated by data from the Panel Study of Income Dynamics (PSID). We seek to determine the factors that lead families to lose or gain DC coverage and to put money into their private pensions or to draw money out of private pensions and annuities prior to age 65. The importance of such discretionary participation and savings responses is accentuated by both the presence of DC pensions, and, presumably, learning that such pensions can be used to stabilize finances prior to retirement. Besides the impact of the overall economic climate, individual, family level events and cash flow changes are expected to play a role in the decision to add to or withdraw from a DC pension plan. Preliminary studies suggest that the savings response by households to recent economic uncertainties during 2009-2011, was greater overall savings and an increase in liquid asset holding, a result consistent with classic predictions of a response to economic turmoil. Overall, pension fund inflows have not been a part of the increase in private saving in the Great Recession.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp282.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp282.

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Length: 40 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:mrr:papers:wp282

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  1. Hurd, Michael & Panis, Constantijn, 2006. "The choice to cash out pension rights at job change or retirement," Journal of Public Economics, Elsevier, vol. 90(12), pages 2213-2227, December.
  2. Shlomo Benartzi, 2001. "Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock," Journal of Finance, American Finance Association, vol. 56(5), pages 1747-1764, October.
  3. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
  4. Jeff Dominitz & Charles F. Manski, 2005. "Measuring and Interpreting Expectations of Equity Returns," NBER Working Papers 11313, National Bureau of Economic Research, Inc.
  5. Timothy Jun Lu & Olivia S. Mitchell, 2010. "Borrowing from Yourself: The Determinants of 401(k) Loan Patterns," Working Papers wp221, University of Michigan, Michigan Retirement Research Center.
  6. Erik Hurst & Ming Ching Luoh & Frank P. Stafford, 1998. "The Wealth Dynamics of American Families, 1984-94," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 267-338.
  7. Elena Gouskova & Ngina Chiteji & Frank Stafford, 2010. "Pension Participation: Do Parents Transmit Time Preference?," Journal of Family and Economic Issues, Springer, vol. 31(2), pages 138-150, June.
  8. Alicia H. Munnell & Laura Quinby, 2010. "Why Did Some Employers Suspend Their 401(k) Match?," Issues in Brief ib2009-10-2, Center for Retirement Research, revised Feb 2010.
  9. F. Thomas Juster & Joseph P. Lupton & James P. Smith & Frank Stafford, 2006. "The Decline in Household Saving and the Wealth Effect," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 20-27, February.
  10. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
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