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The Effects of the Economic Crisis on the Older Population

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Abstract

We study the effects of the 2007-2009 recession on the population age 55 and older. Households in and near retirement have suffered sizeable losses in assets as a result of the economic crisis. There are a number of ways in which households might respond: reduce spending and with that increase saving, work longer, and/or bequeath less. Using longitudinal data from the Health and Retirement Study and its supplemental surveys, we find that all of these adjustments have been important.

Key Findings

There are a number of ways in which households might respond to the financial crisis: reduce spending and with that increase saving, work longer, and/or bequeath less. Using longitudinal data from the Health and Retirement Study and its supplemental surveys, we find that all of these adjustments have been important:

  • Average spending declined during 2007-2009 by eight percentage points more than during 2001-2007 for people aged 50-64.
  • The population age 65 and older made smaller downward adjustments to spending, suggesting it was on average less affected by the crisis.
  • Workers in their fifties expect to work longer: in May 2009, workers estimated the chances of working past age 62 to be 62%, which is 4 percentage points higher than in 2008.
  • However, those who stopped working since 2008 revised their chances of working past age 62 downward from 45% to 40%, expressing pessimism about future job opportunities.
  • On average, people expect to reduce their future bequests by 20%, but the reductions are concentrated among the well-to-do.
  • Negative home equity rose substantially among older homeowners with a mortgage from about 1.6% to 7%.
  • Respondents are pessimistic about economic recovery in the near future.

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Project

Paper ID

WP 2010-231

Publication Type

Working Paper

Publication Year

2010