Lifecycle Impacts of the Financial and Economic Crisis on Household Optimal Consumption, Portfolio Choice, and Labor Supply

Jingjing Chai, Raimond Maurer, Olivia Mitchell and Ralph Rogalla
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Jingjing Chai: Goethe University Frankfurt
Raimond Maurer: Goethe University Frankfurt
Ralph Rogalla: Goethe University Frankfurt

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: The direct financial impact of the financial crisis has been to deal a heavy blow to investment-based pensions; many workers lost a substantial portion of their retirement saving. The financial sector implosion in turn produced an economic crisis for the rest of the economy via high unemployment and reduced labor earnings, which reduced contributions to Social Security and private pensions. Our research asks which types of individuals were most affected by these dual financial and economic shocks, and it also explores how people may react by changing their consumption, saving and investment, work and retirement, and annuitization decisions. We do so with a realistically calibrated lifecycle framework allowing for time-varying investment opportunities and countercyclical risky labor income dynamics. We show that households near retirement will reduce both short- and long-term consumption, boost work effort, and defer retirement. Younger cohorts will initially reduce their work hours, consumption, saving, and equity exposure; later in life, they will have to work more, retire later, consume less, invest more in stocks, and save more.

Pages: 33 pages
Date: 2011-09
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Lifecycle Impacts of the Financial and Economic Crisis on Household Optimal Consumption, Portfolio Choice, and Labor Supply (2011)
Working Paper: Lifecycle impacts of the financial and economic crisis on household optimal consumption, portfolio choice, and labor supply (2011)
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