2010-06-17 12:03:21
By Emily Brandon Wed Jun 16, 2:10 pm ET
The state of the job market and stock market in the year you retire could
affect how much income you receive a decade or more into your retirement. A
stock market decline in the years leading up to retirement typically causes a
reduction in investment income that can still be felt 10 years later, according
to new Wellesley College research. High unemployment around the time of
retirement means some older workers may be pushed out of the workforce earlier
than planned, which also generally reduces retirement income.
[See America's Best Affordable Places to Retire.]
"The economic conditions that occur in the period leading up to a worker's
retirement may affect his or her economic well being for the remainder of his
life," write economists Courtney Coile and Phillip Levine. "Initial conditions
may matter a great deal."
In years with a high unemployment rate, many older workers are forced to retire
because of an inability to find a new job. Early retirement generally lowers
retirement income because annual Social Security benefits are reduced for
individuals who claim payments early. A 1 percent higher unemployment rate at
age 62 results in a drop in the amount of Social Security annual income
retirees between the ages of 70 and 79 receive, according to the Wellesley
College analysis of Census Bureau data. For an unemployed worker in the middle
third of the income distribution this works out to be an average of $2,040 less
in annual Social Security payments, which is a 15 percent drop in annual
income.
[See Job Search Grows Cold, Creating Reluctant Retirees.]
The state of the stock market in the years leading up to retirement can also
have lasting affects for retirees. Long-term declines in stock prices when
workers are in their 50s and 60s continue to result in a lower investment
income for retirees ages 70 to 79. Conversely, investment income in retirement
is higher when the stock market performs better in the years leading up to
retirement. If S&P 500 returns are 100 percentage points higher in the
five-year period when a worker is between ages 55 and 60, retirement income
between ages 70 and 79 is estimated to be about 22 percent or $1,750 higher per
year. A similar boost in the stock market between ages 60 and 65 results in a
13 percent or $1,100 boost in income in the retiree's 70s. Only retirees in the
top third of the income distribution have enough investment income for market
conditions to affect their post-retirement income, the Wellesley College
researchers found.
[See 30 Fast-Growing Careers for Older Workers.]
"Falling stock prices harm the well being of more advantaged older workers by
preventing them from retiring when they want and reducing their retirement
income," write Coile and Levine. "Rising unemployment harms the well being of
less advantaged older workers by leading them to withdraw from the labor market
sooner than they want and also reducing their retirement income."