Recessions and RetiRement

Recessions and RetiRement - 23 American Economic Review:...

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Unformatted text preview: 23 American Economic Review: Papers & Proceedings 2011, 101:3, 23–28 = 10.1257/aer.101.3.23 The economic crisis that began in 2008 had multiple implications for retirement behavior ( Coile and Levine 2007, 2009, and 2010 ) . The stock market crash may have caused some indi- viduals to defer retirement because of losses in their 401 ( k )-type retirement plans. The spike in unemployment may have led others to “retire” sooner in response to a job loss or the inabil- ity to find work. By the end of 2010, however, stocks had nearly rebounded to precrash lev- els. Although there may have been a short-term impact, the market’s sharp rise has substantially diminished the importance of this part of the story. The weakness in the labor market, how- ever, continues to be extensive and persistent. The purpose of this analysis is to focus on its implications for retirement and retirement income in the coming years. High unemployment has the potential to sig- nificantly alter older workers’ income, both in the present and for the remainder of their lives. If an older worker loses his or her job, finding a new one may be even more difficult than it is for a younger worker. Older workers’ relatively short time horizon in the labor force may reduce their own or a prospective employer’s willingness to invest in additional human capital. If specific capital has been lost, the wage a new employer might offer could be considerably below the worker’s pre- vious wage, reducing the likelihood of an offer being extended or accepted. For these reasons and others, the future employment prospects of a laid-off older worker may be bleak. In such an environment, Social Security ben- efits may be a lifeline for these workers. Taking RECESSIONS AND RETIREMENT † Recessions , Retirement, and Social Security By Courtney C. Coile and Phillip B. Levine* † Discussants: Colleen Flaherty Manchester, University of Minnesota; Scott Weisbenner, University of Illinois; Jon M. Bakija, Williams College; Purvi Sevak, Hunter College. * Coile: Department of Economics, Wellesley College, Wellesley, MA 02481 ( e-mail: [email protected] ) ; Levine: Department of Economics, Wellesley College, Wellesley, MA 02481 ( e-mail: [email protected] ) . up benefits when they first become available at age 62 may help a laid-off older worker pay the bills, but it also means a reduced flow of income for the remainder of the worker’s life, since monthly benefits are reduced for early claiming. The impact of lower monthly payments may be particularly pronounced for individuals with low socioeconomic status, who rely heavily on Social Security to make ends meet....
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This note was uploaded on 03/30/2012 for the course COM156 156 taught by Professor Charpentier during the Spring '11 term at University of Phoenix.

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Recessions and RetiRement - 23 American Economic Review:...

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