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Reconsidering Retirement

Reconsidering Retirement: How Losses and Layoffs Affect Older Workers

Courtney C. Coile
Phillip B. Levine
Copyright Date: 2010
Pages: 156
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  • Book Info
    Reconsidering Retirement
    Book Description:

    The economic downturn that began in 2008, the most severe in decades, has hit older Americans hard. Many have seen huge losses to their 401(k)s. In numerous cases the value of homes -the largest investment most older Americans have ever made -has diminished considerably. In addition, large numbers of American workers, including those 50 and older, have lost their jobs and may have difficulty replacing them. Suddenly the future seems a whole lot less certain, throwing years of planning into doubt. InReconsidering Retirement, economists Courtney Coile and Phillip Levine go beyond the headlines to explain how the economic crisis will affect the future plans and well-being of older Americans.

    Amid well-publicized reports that older workers needed to stay on the job because of the crisis, the number of U.S. workers claiming Social Security retirement benefits actually rose substantially from 2008 to 2009. The authors maintain that job loss has been the culprit, leading to premature retirement, and while this trend may have been less noticed, it is perhaps the more significant outcome of the crisis.

    Coile and Levine examine the three major characteristics of the recession thought to influence retirement behavior: decline in the stock market, reduced housing values, and a weak labor market. The authors find that lower home prices did not actually affect retirement behavior but that the decline in the stock market did lead some workers to delay retirement, while a weakened labor market actually forced more older workers with fewer skills into retirement. As a result, these early retirees, who rely on Social Security, face a lifetime of lower benefits.

    "Workers affected by weak labor markets are more numerous than those affected by poor stock market returns, are more likely to have low socioeconomic status, and have a more substantially reduced income for the rest of their lives."-From the introduction

    "Public discussion has focused on the effects of the stock market crash and has failed to recognize that most of the workers who are affected by stock losses come from the upper tail of the income distribution. Similarly, falling house prices have received considerable attention although they have had little impact on workers' retirement decisions. The most pressing problem older workers currently face is the labor market, which has received little attention."-From chapter 8

    The legacy of recessions is that those most in need usually are last to reap the benefits of an economic recovery. While the lion's share of media coverage after the economic downturn of 2008-09 has gone to the plight of older workers who remain employed, Courtney Coile and Phillip Levine examine the effects of the economic crisis on all workers approaching retirement age. Some of their findings are counterintuitive and will surprise many analysts and readers.

    In particular, they shine a light on lesser-skilled workers forced into early retirement -a number estimated at 378,000 workers. These workers will be forced into early involuntary retirement, drawing from Social Security sooner and receiving lower retirement income.

    This important book provides a complete picture of older workers today, how they will transition into retirement, and what we can do to assist them as the recession persists.

    eISBN: 978-0-8157-0500-0
    Subjects: Business, Economics

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-x)
  4. Prologue
    (pp. xi-xxviii)

    We include this prologue to set the stage for the arguments we make in the chapters that follow. Newspaper stories reprinted here typify much of the press coverage dedicated to the impact of the economic crisis that began in 2008 on workers’ retirement plans. At the time these stories appeared, between fall 2008 and fall 2009, the media’s predominant assumption was that older workers would be forced to delay retirement because of their falling stock portfolios and, to a lesser extent, slumping house prices. The premise of our book, however, is that media accounts such as these seriously missed the...

  5. 1 Introduction
    (pp. 1-10)

    The current economic crisis is arguably the most severe the United States has experienced since the Great Depression. Economic activity began falling in the first quarter of 2008 and, with the exception of slow growth in a single quarter in that year, continued to contract through the second quarter of 2009. The unemployment rate surpassed 10 percent in October 2009, having risen more than 5 points since late 2007. These sobering statistics suggest that of the eleven recessions since World War II, this crisis is certainly among the worst. In its wake, millions of Americans have experienced significant economic disruption...

  6. 2 Defining and Explaining Retirement
    (pp. 11-26)

    What are the relevant trends in retirement behavior? What do researchers already know about how workers make retirement decisions? And what is retirement, anyway? We explore these fundamental questions in this chapter as background for our subsequent analysis.

    Any analyst who wishes to study retirement behavior must first decide on a definition of retirement. It turns out that this is no easy task. Merriam-Webster’s Dictionary defines retirement as “withdrawal from one’s position or occupation or from active working life,” which suggests that retirement may be a state of mind as much as anything else. The analyst, however, needs a more...

  7. 3 Detecting the Impact of Market Conditions
    (pp. 27-48)

    Since the purpose of this book is to investigate the influence of stock market, housing market, and labor market conditions on retirement decisions and subsequent retiree well-being, it is essential to explain how one does that. The procedure turns out to be rather complicated.

    To begin, it requires information on workers’ retirement decisions. Many factors come into play when an individual is contemplating retirement. Conditions in stock, housing, and labor markets are merely a few of them. As important as these conditions may be, we believe that for most workers they are not the primary determinants of retirement. Rather, retirement...

  8. 4 Impact of the Stock Market Crash
    (pp. 49-66)

    If the numerous media reports and public opinion polls blaming the recent stock market crash for a decline in retirement are to hold water, several conditions must be met. First, any drop in the stock market must be large enough to potentially affect people’s behavior. As any stock market watcher knows, it is not uncommon for major market indices like the S&P 500 Index or Dow Jones Industrial Average to rise or fall by several percentage points or more over the course of a week, or even within a single day. This has been especially true over the past several...

  9. 5 Impact of the Housing Market Crash
    (pp. 67-82)

    Although the origins of the current economic crisis will surely be debated for years to come, most analysts agree that risky lending in the housing market contributed to the crisis by helping to create a bubble in housing prices and leaving banks in a precarious position when the bubble burst. Plunging house prices put millions of Americans “under water” on their homes, owing more on them than they are worth at present. Older households are less likely to be in this position, many having purchased their homes long ago, but they are not immune to the consequences of the housing...

  10. 6 Impact of the Labor Market Crash
    (pp. 83-98)

    According to the Social Security Administration’s chief actuary, Stephen Goss, the number of claims for new retired worker benefits in late 2008 and early 2009 rose by 10 percent more than one would expect from changes in demographics alone (Goss, 2009). Goss suspected that the economic downturn was the potential cause of this unexpected increase. But if, as indicated in chapter 4, poor stock market returns are leading at least some workers to delay retirement, how can new Social Security claims (which are synonymous with retirement for many, though not all, workers) be on the rise?

    One possible explanation is...

  11. 7 Implications for Retiree Well-Being
    (pp. 99-116)

    An important conclusion from chapters 4, 5, and 6 is that weaker longer-term stock returns lead more-skilled workers to delay retirement, while higher unemployment rates lead the less-skilled to seek earlier retirement. By contrast, housing market returns do not appear to have much impact on retirement behavior.

    So far our analysis has focused exclusively on the effect of market fluctuations on retirement. Retirement is certainly an important subject, as indicated by the voluminous research on its determinants. It also is of great interest to policymakers. Public policy can play an important role in influencing retirement decisions, and conversely, individual retirement...

  12. 8 Discussion and Policy Implications
    (pp. 117-136)

    The research in this book provides some support for the public’s concern about the potential impact of the current economic crisis on older workers. Specifically, we find evidence that a bear stock market is associated with delayed retirement, but only for more-skilled workers. Although the market has recovered somewhat from its steep decline in 2008-09, it still appears likely that workers now approaching retirement age will experience poor long-term market returns and that some will delay retirement as a result. On the other hand, the notion that falling house prices will have an impact on retirement behavior appears to have...

  13. Appendix Research on the Effect of the Stock Market, Housing Market, and Labor Market on Retirement
    (pp. 137-140)
  14. References
    (pp. 141-146)
  15. Index
    (pp. 147-156)
  16. Back Matter
    (pp. 157-158)