IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v24y2010i1p161-82.html
   My bibliography  Save this article

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

Author

Listed:
  • 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.

Suggested Citation

  • Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2010. "What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 161-182, Winter.
  • Handle: RePEc:aea:jecper:v:24:y:2010:i:1:p:161-82
    Note: DOI: 10.1257/jep.24.1.161
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.1.161
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    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 439-457, October.
    4. 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.
    5. Alan L. Gustman & Thomas L. Steinmeier, 2002. "Retirement and the Stock Market Bubble," NBER Working Papers 9404, National Bureau of Economic Research, Inc.
    6. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, June.
    7. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kathleen Arano & Carl Parker, 2016. "The great recession and changes in faculty expected retirement age," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 127-136, January.
    2. 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.
    3. Venti Steven, 2011. "Economic Measurement in the Health and Retirement Study," Forum for Health Economics & Policy, De Gruyter, vol. 14(3), pages 1-20, April.
    4. Giuseppe Grande & Ignazio Visco, 2010. "A public guarantee of a minimum return to defined contribution pension scheme members," Temi di discussione (Economic working papers) 762, Bank of Italy, Economic Research and International Relations Area.
    5. repec:eme:ijmpps:ijm-02-2016-0041 is not listed on IDEAS
    6. 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.
    7. Jeffrey P. Thompson & Timothy 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.).
    8. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2012. "Does Stock Market Performance Influence Retirement Intentions?," Journal of Human Resources, University of Wisconsin Press, vol. 47(4), pages 1055-1081.
    9. Devlin-Foltz, Sebastian & Henriques, Alice M. & Sabelhaus, John, 2015. "The Evolution of Retirement Wealth," Finance and Economics Discussion Series 2015-9, Board of Governors of the Federal Reserve System (U.S.).
    10. Andreas Hubener & Raimond Maurer & Olivia S. Mitchell, 2016. "How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 937-978.
    11. 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.
    12. repec:eee:hapoch:v1_237 is not listed on IDEAS
    13. Irina Merkurieva, 2018. "Late Career Job Loss and the Decision to Retire," Discussion Paper Series, Department of Economics 201606, Department of Economics, University of St. Andrews.
    14. Catalina Amuedo-Dorantes & Susan Pozo, 2015. "The impact of the recession on the wealth of older immigrant and native households in the United States," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-27, December.
    15. 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.
    16. Kathleen G. Arano & Carl D. Parker, 2016. "The great recession and changes in faculty expected retirement age," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 127-136, January.
    17. Börsch-Supan, A. & Härtl, K. & Leite, D.N., 2016. "Social Security and Public Insurance," Handbook of the Economics of Population Aging, Elsevier.
    18. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, Elsevier.
    19. Nicolas Sirven & Thomas Barnay, 2017. "Expectations, loss aversion and retirement decisions in the context of the 2009 crisis in Europe," International Journal of Manpower, Emerald Group Publishing, vol. 38(1), pages 25-44, April.
    20. David Love & Lucie Schmidt, 2015. "Comprehensive Wealth of Immigrants and Natives," Working Papers wp328, University of Michigan, Michigan Retirement Research Center.
    21. Courtney C. Coile, 2015. "Economic Determinants Of Workers’ Retirement Decisions," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 830-853, September.
    22. 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;Population Association of America (PAA), vol. 50(4), pages 1449-1475, August.
    23. 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.
    24. Andrikopoulos, Andreas & Angelidis, Timotheos & Skintzi, Vasiliki, 2014. "Illiquidity, return and risk in G7 stock markets: Interdependencies and spillovers," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 118-127.
    25. Gustafson, Matthew T., 2017. "The market sensitivity of retirement and defined contribution pensions: Evidence from the public sector," Journal of Public Economics, Elsevier, vol. 145(C), pages 1-13.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:24:y:2010:i:1:p:161-82. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.