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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.

Suggested Citation

  • Purvi Sevak, 2002. "Wealth Shocks and Retirement Timing: Evidence from the Nineties," Working Papers wp027, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp027
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    Cited by:

    1. 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.
    2. Lingxiao Zhao & Gregory Burge, 2017. "Housing Wealth, Property Taxes, and Labor Supply among the Elderly," Journal of Labor Economics, University of Chicago Press, vol. 35(1), pages 227-263.
    3. 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.
    4. 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.
    5. Purvi Sevak & Lucie Schmidt, 2011. "Macroeconomic Conditions and Updating of Expectations by Older Americans," Working Papers wp259, University of Michigan, Michigan Retirement Research Center.
    6. 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).
    7. 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.
    8. 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.
    9. 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.).
    10. Lucie Schmidt & Purvi Sevak, 2006. "Gender, Marriage, And Asset Accumulation In The United States," Feminist Economics, Taylor & Francis Journals, vol. 12(1-2), pages 139-166.
    11. Courtney C. Coile & Phillip B. Levine, 2006. "Bulls, Bears, and Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 59(3), pages 408-429, April.
    12. Paul Marmora & Moritz Ritter, 2015. "Unemployment and the Retirement Decisions of Older Workers," Journal of Labor Research, Springer, vol. 36(3), pages 274-290, September.
    13. 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.
    14. 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.
    15. repec:red:issued:15-42 is not listed on IDEAS
    16. 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.
    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.).
    18. John Ameriks & Andrew Caplin & Minjoon Lee & Matthew D. Shapiro & Christopher Tonetti, 2015. "The Wealth of Wealthholders," NBER Working Papers 20972, National Bureau of Economic Research, Inc.
    19. 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.
    20. Alan Barrett & Irene Mosca, 2013. "Increasing the State Pension Age, the Recession and Expected Retirement Ages," The Economic and Social Review, Economic and Social Studies, vol. 44(4), pages 447-472.
    21. Gabor Kezdi & Purvi Sevak, 2004. "Economic Adjustment of Recent Retirees to Adverse Wealth Shocks," Working Papers wp075, University of Michigan, Michigan Retirement Research Center.
    22. Julie Zissimopoulos & Nicole Maestas & Lynn Karoly, 2007. "The Effect of Retirement Incentives on Retirement Behavior: Evidence from the Self-Employed in the United States and England," Working Papers wp155, University of Michigan, Michigan Retirement Research Center.

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