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

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.

The Evolution of Retirement Wealth

“…The SCF is an excellent data source for the analysis here across broad birth cohorts and income groups, as the sample 7 The Health and Retirement Study (HRS) is a good resource for studying retirement wealth trajectories for U.S. families approaching or in retirement, and the HRS has a panel structure. See, in particular, Gustman et al (2010Gustman et al ( , 2011Gustman et al ( , 2014 and Poterba et al (2007Poterba et al ( , 2012Poterba et al ( , 2013. Unfortunately, the HRS does not include the younger families and the very wealthy families who are included in the SCF, and those missing groups are the focus of much of the analysis in this paper.…”

The effect of the financial crisis on older households in England

“…They find that the total funds accumulated falls by 18.3%, with the median accumulated retirement account for households aged 50 and over in 2008 being around the level it was in 2005. Coile and Levine (2006) and Gustman, Steinmeier and Tabatabai (2010) argue that older individuals have relatively little invested in the stock market and so even a sizable decreases in the value of financial assets will only have small effects on their wealth.…”

The impact of the recession on the wealth of older immigrant and native households in the United States

“…Alternatively, individuals may have delayed retirement due to the impact of the financial crisis on financial asset values (in IRAs, Keogh plans and other retirement assets). Using simulation models, Gustman et al (2010) suggest that early boomers delayed their retirement by 1.5 months on average using data on that cohort from the Health and Retirement Study (HRS). Similarly, Goda et al (2011) use the 2006 and 2008 waves of the HRS to show that reductions in the S&P index increased the expectation to remain in the workforce at 62.…”