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Journal of Economic Perspectives: Vol. 24 No. 1 (Winter 2010)

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

Article Citation

Gustman, Alan L., Thomas L. Steinmeier, and Nahid Tabatabai. 2010. "What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population." Journal of Economic Perspectives, 24(1): 161-82.

DOI: 10.1257/jep.24.1.161

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.

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Authors

Gustman, Alan L. (Dartmouth College)
Steinmeier, Thomas L. (TX Tech U)
Tabatabai, Nahid (Dartmouth College)

JEL Classifications

D14: Personal Finance
G14: Information and Market Efficiency; Event Studies
J26: Retirement; Retirement Policies

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