The Recession's Impact Will Linger for Retirees,
Say Wellesley College Economists
Mass.— If you’re nearing retirement, you might want to look around yourself first.
For today’s retirees, the impact of the recession will likely last for the remainder
of their lives, say Wellesley College economists Courtney Coile (above)
and Phillip Levine (below).
The labor and stock market conditions at the time of retirement can impact people for a decade or more, says new research from the National Bureau of Economic Research by Wellesley economists Courtney Coile and Phillip Levine.
For today’s retirees, the impact of the recession will likely last for the remainder of their lives, according to their paper, “Recessions, Reeling Markets, and Retiree Well-Being,” recently featured in U.S. News & World Report.
Press coverage of the recession has largely focused on the impact of lost retirement savings through 401(k)-type savings plans, an issue that primarily affects those at the top of the economic ladder. However, a bigger issue of hardship may be the effect of the labor market on lower-income workers who lose their jobs.
“More emphasis should be paid to the difficulties that older people at the lower end of the income distribution face now and in the future as a result of the current economic crisis,” Levine said.
When a recession hits, more older workers lose their jobs, forcing them to retire early. These workers claim their Social Security benefits earlier than expected, and so they receive a lower benefit amount for the rest of their lives. Using Census data, Coile and Levine found that an unemployed worker experiences a roughly 20 percent drop in Social Security income as a result of claiming benefits several years early.
“The workers most subject to this are those at the bottom of the income distribution,” Coile said. “For them, the lost income is likely to mean serious economic hardship.”
The collapse in the stock market will also lower retirees’ incomes for the remainder of their lives, but the impact will be concentrated among the wealthiest workers, who have substantial financial assets to lose.
“In past work, we have shown that these workers delay retirement to recoup some of their losses,” Coile said. “This work indicates that they do not delay long enough to fully compensate for their losses, so their retirement income is lower.”
Coile is the Class of 1966 Associate Professor of Economics at Wellesley. She also serves as a research associate at the National Bureau of Economic Research (NBER) and as a member of the National Academy of Social Insurance. She is an editor of the Journal of Pension Economics and Finance and the NBER's Bulletin on Aging and Health. Her research centers on issues in the economics of aging, particularly the economic determinants of the retirement decision. At Wellesley, she teaches courses in introductory microeconomics, econometrics, health economics and public economics.
Levine is the Katherine Coman and A. Barton Hepburn professor of economics and chair of the Department of Economics at Wellesley. He also serves as a research associate at the National Bureau of Economic Research, a research affiliate of the National Poverty Center and a member of the National Academy of Social Insurance. He has acted as a senior economist at the White House Council of Economic Advisers in the Clinton Administration. His research has largely been devoted to empirical examinations of the impact of government programs and social legislation on individuals’ and firms’ behavior. At Wellesley, he teaches classes in social policy, probability and statistics, and econometrics.
Since 1875, Wellesley College has been a leader in providing an excellent liberal arts education for women who will make a difference in the world. Its 500-acre campus near Boston is home to 2,300 undergraduate students from all 50 states and 75 countries.