Reconsidering Retirement: How Losses and Layoffs Affect Older Workers

Courtney Coile, Phillip Levine

NBER Retirement Research Center Paper No. NB 10-18
Issued in September 2010

Recent declines in U.S. stock and housing markets have led to widespread speculation that workers will delay retirement due to shrinking retirement accounts and home equity. Yet the effect of the weak labor market is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. The net effect of the current economic crisis on retirement is thus far from clear. The crisis may also have long-term implications for well-being, if workers who experience asset losses do not delay retirement sufficiently to fully offset the losses or if workers who experience job loss claim Social Security benefits earlier. In this paper, we use 30 years of data from the March Current Population Survey to estimate models relating retirement decisions to fluctuations in equity, housing, and labor markets. We also use the 2000 Census and 2001-2007 American Community Survey to explore the long-term effects of market conditions on retiree income. We find that workers age 62 to 69 retire earlier in response to high unemployment and retire later in response to weak stock markets; less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. We find no evidence that workers age 55 to 61 respond to these fluctuations or that housing markets affect retirement. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash. In terms of the long-term effects on wellbeing, we find that falling stock markets lead to lower investment income for high-income retirees, while weak labor markets result in lower Social Security income for middle- and lowerincome retirees.

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