Does Stock Market Performance Influence Retirement Intentions?

Abstract

Media reports predicted that the stock market decline in October 2008 would cause changes in retirement intentions, due to declines in retirement assets. We use panel data from the Health and Retirement Study to investigate the relationship between stock market performance and retirement intentions during 1998-2008, a period that includes the recent crisis. While we find a weak negative correlation between stock returns and retirement intentions, further investigation suggests that this relationship is not driven by wealth shocks brought about by stock market fluctuations, but by other factors that are correlated with both the stock market and retirement intentions.

Did the Great Recession Influence Retirement Plans?

“…We find no effects of the economic indicators on plans to stop working or on expected age to stop working. These results differ from those of earlier HRS studies that reported that stock market and unemployment changes influenced the probability of working past age 62 and 65 (Goda et al, 2010(Goda et al, , 2011; however, we excluded partial retirees, whereas past research using the HRS did not. More research is needed to explore why the recession seems to have had little impact on plans to stop working or the age at which workers plan to stop.…”

“…Both the 2000 stock market decline and the recession that began in late 2007/early 2008 led to steep drops in some retirement portfolios and assets (Eschtruth & Gemus, 2002;McFall, 2011), particularly for younger workers with defined contribution rather than defined benefit pension plans (Gustman, Steinmeier, & Tabatabai, 2009a). Stock market declines have been shown to lead workers to postpone the actual and expected timing of their retirement, although effects have been relatively small (Bosworth & Burtless, 2010;Coile & Levine, 2006Goda et al, 2010Goda et al, , 2011Munnell, Muldoon, & Sass, 2009). Rising unemployment during recessions can undermine workers' opportunities to extend their working lives.…”

“…Rising unemployment during recessions can undermine workers' opportunities to extend their working lives. Higher unemployment rates are associated with earlier retirement and expectations for earlier labor force exits (Bosworth & Burtless, 2010;Coile & Levine, 2011;Goda et al, 2010Goda et al, , 2011Munnell et al, 2009).…”

“…The recession that began at the end of 2007 created considerable interest in the effects of increased stock market fluctuations and heightened unemployment rates on the retirement plans of older workers (Bosworth & Burtless, 2010;Coe & Haverstick, 2010;Goda, Shoven, & Slavov, 2010Sass, Monk, & Haverstick, 2010). Our research, using data from the 2006 and 2008 waves of the Health and Retirement Study (HRS), extends previous studies in several ways.…”

What Causes Workers to Retire Before They Plan?

“…Estimates from Bosworth and Burtless (2010) suggest that a one standard deviation (more than 10 percentage points over three years) decrease in asset returns would increase labor force participation for those age 55 to 59 by only 0.2 to 0.4 percentage points. Other studies find no statistically significant relationship between stock market indices and retirement probabilities (Hurd and Reti 2003;Hurd, Reti, and Rohwedder 2009;Coile and Levine 2006;Goda, Shoven, and Slavov 2010). Even in the Great Recession, McFall (2011) and Gustman, Steinmeier, and Tabatabai (2010) project only a small increase in the retirement age.…”