Among the darker fears at the onset of the Great Recession was how it would affect those about to retire.
This group, it was believed, would be particularly vulnerable in an economic crisis because any losses they experienced could be permanent. Their nest eggs depleted by crashing markets, near-retirement workers would be forced to labour well into their old age. Even then, there may not be enough time left to recover their losses.
Those were the fears anyway. In the U.S., the reality hasn’t been nearly as bleak, according to a working paper from the National Bureau of Economic Research.
Those aged 53 to 58 in 2006 -- a group dubbed the Early Boomers -- saw their overall wealth decline just 2.8 per cent between 2006 and 2010, according to economists Alan Gustman and Nahid Tabatabai of Dartmouth College and Thomas Steinmeier of Texas Tech University.
“We really were surprised at how well they did,” said Mr. Gustman. “Everybody really was fearing the worst and for a while we had no idea where the economy was going. But expectations can be very different from what actually happens.”
An analysis of data from the Health and Retirement Study -- a long-running panel survey of Americans over the age of 50 -- revealed that a plunge in housing prices inflicted the worst damage on Early Boomers. The collapse in housing markets reduced total wealth by 4.5 per cent. In this sense, the group was far worse off than members of cohorts six and 12 years older, who accumulated an average 5 per cent in total wealth over the same age span, largely because of rising home values.
But the losses of Early Boomers were offset by stable wealth in both social security and pensions. Indeed, this cohort, unlike those entering the labour market behind them, are far more likely to have defined benefit pension plans with fixed payments.
As a result, “their pension plans really don’t look much worse than the generations that preceded them. It’s just newer workers who are more likely to be in jobs that offer defined contribution plans and 401Ks,” Mr. Gustman said.
And since the Early Boomers had paid off more of their homes than younger Americans, they were less likely to be saddled with negative equity mortgages (where the amount owed on a home exceeds its value on the free market). In fact, just 5 per cent of the Early Boomers found their housing wealth underwater. And because they aren’t expected to cash in on their homes for a decade or two, they have time to recoup their losses.
As for whether the recession pushed older workers to either retire early due to cutbacks or by contrast, to toil into what should have been their golden years -- well, this doesn’t seem to have been the case. The share of the Early Boomer set that was still working declined by 13.8 per cent between 2006 and 2010, a rate identical to one older cohort and only slightly greater than the other.
“All told, the retirement behaviour of the Early Boomer cohort looks similar, at least so far, to the behaviour observed for members of older cohorts,” the authors note.
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