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Do market returns affect retirement timing?

Do market returns affect retirement timing?. Retirement Success?. The economic crisis substantially decreased retirees’ wealth shortened retirement income longevity Future retirees expect less uncertainty of Social Security the DB  DC trend Future retirees need more improved health

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Do market returns affect retirement timing?

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  1. Do market returns affect retirement timing?

  2. Retirement Success? • The economic crisis • substantially decreased retirees’ wealth • shortened retirement income longevity • Future retirees expect less • uncertainty of Social Security • the DB  DC trend • Future retirees need more • improved health • increased longevity

  3. When do people retire? W0 = accumulated wealth for retirement C = desired consumption at retirement P = income from Social Security & DB plans R = age at retirement T = age at death rt = portfolio return of year t

  4. Market Return Sequencing & Retirement Income Longevity • The earlier the retirement wealth experiences a negative return, the shorter the longevity of retirement income.

  5. Research Objective • To explore factors that influence elective retirement decision; in particular, the effect of market returns on retirement timing.

  6. Hypotheses • Stock market return  earlier elective retirement; • Net worth earlier elective retirement;

  7. Data • Health and Retirement Study 1992-2008 • The initial HRS cohort (born 1931 to 1941) • Working full-time or part-time in 1992 • Sample size: 4,054

  8. Probability to Retire by Market Sequence

  9. Market returns had a positive effect on elective retirement. 1% increase in market returns increased the likelihood to retire by 2.5%.

  10. Higher wealth increased the likelihood to retire. The likelihood to retire increased 0.7% with a 1% increase in net worth.

  11. Those with a retired spouse were more likely to retire. Among married couples, respondents with a retired spouse were 2.4 times as likely to retire as those whose spouse was working.

  12. Other Multivariate Results • Labor Income: negative effect • Type of Pension Plans (DC vs. DB)

  13. So what?

  14. Questions?

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