The Great Recession and the Retirement Plans of Older Americans

Brooke H. McFall, University of Michigan

A life-cycle model incorporating both consumption and retirement timing implies that exogenous wealth losses should delay optimal retirement timing. Using data from the Cognitive Economics Study and the Health and Retirement Study, this paper quantifies wealth losses in terms of the additional length of time older Americans would have to work to make up losses. Using these measures, regressions and a novel method for reducing the impact of error-ridden observations are used to examine the relationship between this measure of wealth loss and retirement planning. Results imply that reported wealth losses are associated with an increase in planned retirement age on the order of a few weeks to a few months for the average older American, but up to several months for some segments of the population. These results are consistent with results of recent studies and the life-cycle model, but stand in contrast to other examinations of wealth shocks.