How Do Long-Run Financial Planning Expectations and Decisions Respond to Short-Run Fluctuations in Financial Markets?

Published: 2010


While media reports predicted substantial changes in labor supply behavior due to the sharp decline in the value of the stock market in October 2008, empirical evidence on the relationship between equity markets and retirement is mixed. We use panel data from the Health and Retirement Study to investigate the relationship between stock market performance and plans for retirement during 1998-2008, a period that includes the recent financial crisis, by exploiting within-year variation in the S&P 500 index across plausibly exogenous dates of interview. While we do detect a statistically significant negative relationship between the reported probability of working full-time at age 62 and the S&P 500 index in the most recent years of our study period, we do not find strong evidence that changes in equity markets influence changes in retirement plans over the period as a whole. We conclude that the higher probabilities of working reported in recent years were likely due to factors other than stock market performance, such as pessimism about economic security more generally.

Key Findings