NCPA - National Center for Policy Analysis

Does Stock Market Performance Influence Retirement Intentions?

November 8, 2012

It isn't clear whether there is any correlation between stock market performance and retirement decisions of those in the labor force. Many in the media predicted that the stock market decline would affect retirement decisions of people in the labor force, say Sita Nataraj Slavov, John B. Shoven and Gopi Shah Goda of the American Enterprise Institute.

  • The share of private sector employees who participated in defined benefits plan declined from 38 percent in 1980 to 20 percent in 2008.
  • Employees participating in defined contributions plans rose from 8 percent to 31 percent over the same period.
  • As a result, these workers are more responsible for planning their retirement and making investment decisions.

Research that uses data from the Health and Retirement Study looks at the relationship between the performance of the stock market and retirement intentions from 1998-2008. The research finds a weak, negative correlation between the market and retirement decisions for the sample of working people over the age of 50.

Although the research finds a weak relationship between stock returns and retirement intentions, it is not because of the wealth shocks as a result of market fluctuations, but rather other factors that correlate with the stock market and retirement intentions.

For instance, it may be that stock market fluctuations change the amount of risk or the level of risk aversion, both of which independently affect the labor supply. In addition, factors such as the level of optimism, the salience of fluctuations and expectations of labor market conditions in the future may also influence retirement behavior.

Source: Sita Nataraj Slavov, John B. Shoven and Gopi Shah Goda, "Does Stock Market Performance Influence Retirement Intentions?" American Enterprise Institute, October 31, 2012.


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