Jr Scholar Research: “Do The Newly Retired Adjust Their Consumption or Labor Supply When Their Retirement Wealth Drops?”

Published: 2003
Project ID: UM03-S1


Since the mid-nineties, the stock market has had an unprecedented impact on the wealth of current and future retirees. The sharp declines in stock values since 2000 reduced the wealth of many retirees. This study quantifies the magnitude of the wealth loss and estimates behavioral responses of recent retirees. These responses include returning to work, reducing consumption, and reducing ones planned bequests. Because the fluctuations in asset values were large and unexpected, one can isolate variation in wealth useful for identifying behavioral responses. Understanding the impact of market fluctuations on retirement wealth, and the responses of individuals to these impacts, is of fundamental importance to retirement policy, particularly as individual accounts are considered for Social Security.



Purvi Sevak