Recessions, Wealth Destruction, and the Timing of Retirement

Abstract

Recessions affect the timing of retirement through two channels, a weaker job market and losses in household wealth. The two phenomena have opposite effects. A weaker economy causes employers to increase permanent job separations and reduce new hires, accelerating retirements that would otherwise have occurred later. Falling household wealth reduces the resources available to pay for retirement discouraging older workers from leaving the workforce. We use aggregate and micro-census data on old-age labor supply as well as time series date on unemployment, stock and bond returns, and house appreciation to estimate business cycle effects on Social Security benefit acceptance and labor force exit. Trailing real stock and bond returns and house price appreciation have statistically significant but very small effects on old-age labor force participation…