Recessions, Reeling Markets, and Retiree Well-Being

We explore the impact of economic fluctuations around the time of retirement on retiree well-being. Using data from the Census and the American Community Surveys, we examine whether labor market and stock market conditions around the time of retirement affect the income of retirees when they are in their 70s. We find that there are long-lasting effects of market conditions on economic well-being. Workers who face a weak labor market at age 62 receive lower Social Security payments. These effects are concentrated among lower and middle income retirees and they are large – a retiree in the lower third of the income distribution who experiences a late career layoff faces a $3,000 reduction in his annual Social Security benefit, or about 30 percent relative to the average personal income of retirees in this group. Workers who experience below average stock market returns in the years leading up to retirement are less likely to receive any investment income in retirement. This effect is concentrated among higher income retirees and is smaller relative to their average income. These results suggest the problems that older workers face in the labor market may merit greater attention from researchers and policy makers