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Will Rising Unemployment Hurt Retirement-Age Workers?

As a result of the financial downturn, older workers may be forced to retire early.

(originally published by Booz & Company)

The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement
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Courtney Coile and Phillip B. Levine

National Bureau of Economic Research, Working Paper No. 15395

Date Published: 
October 2009 

Many headlines over the past year have suggested the economic crisis would have a significant impact on the U.S. job market, as plunging stock prices would compel older employees to postpone their retirement, even past the age of 65. But the authors of this paper find the opposite to be true: The weak economy, they conclude, is likely to result in job losses that will force more people to retire early. 

Using 30 years of data from the Bureau of the Census Current Population Survey and the Federal Reserve’s Survey of Consumer Finances, the authors correlated models of retirement decisions with fluctuations in the labor, housing, and equity markets. Their analysis indicates that labor market conditions are an important predictor of retirement decisions, and that when the unemployment rate rises, more workers between the ages of 62 and 69 retire, particularly those with less education who stand to lose lower-income jobs. Overall, as a result of the current downturn, the authors estimate that the surge in the number of retirements caused by unemployment will be almost 50 percent higher than the decline in the number of retirements resulting from depleted equity and savings.

The authors note that higher-income workers are more likely to suffer stock losses and may choose to work longer, but it is the workers on the bottom of the economic ladder who will suffer most and retire prematurely because of the collapsing labor market.

The paper’s findings have implications beyond the current financial crisis, because they indicate that past research and policy positions have underestimated the role that labor market trends play in an employee’s decision to retire. 

Bottom Line:
Many have predicted that the financial downturn and subsequent stock market plunge would lead workers to delay their retirement, but this paper finds instead that the rising unemployment rate and job losses are compelling more employees to retire early.

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