Recessions, Wealth Destruction and the Timing of Retirement
In this study, we evaluate the retirement decision using two different analytical approaches to assessing the impact of economic conditions on retirement. The first uses aggregate statistics to measure the response of older workers to variations in labor market conditions and household wealth holdings. In particular, we examine administrative data on new retired-worker benefit awards from the Social Security Administration (SSA) and information from household surveys about the labor force status of older workers within narrow age groups. We compare these measures of labor supply with each other and with aggregate statistics on labor market conditions, such as the unemployment rate for prime-age workers, and the trailing returns on a variety of financial assets. The aggregate measures are useful for identifying trends and breaks in asset returns and retirement behavior. They provide us with helpful indicators of the link between retirement trends, on the one hand, and business cycles and asset returns, on the other. However, the statistical power of aggregate level analysis is limited, since the reliance on economy-wide averages obscures the diversity of individual responses to changing economic conditions. The limit on the number of observations also restricts the analysis to relatively simple models.
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