The Impact of the Financial Crisis on Asset Allocation, Annuity Demand, Work Effort, and Retirement Behavior over the Life Cycle

The global financial crisis has deeply affected household saving, work, and income patterns. The crisis dealt a heavy blow to investment-based private pensions. The financial implosion, in turn, produced an economic crisis with high unemployment and low earnings. These factors had the unfortunate effect of curtailing contributions to Social Security and private pensions. Which sorts of individuals are most affected by the dual financial and economic shocks and how might they react by changing their investment, annuitization, work, and retirement decisions? Our research seeks to examine these questions using a realistically calibrated life-cycle framework allowing for time-varying investment opportunities and countercyclical risky labor income dynamics. The project will inform policymakers about how such a crisis differentially shapes how households respond to economic shocks.