Abstract
Although health and employment shocks are fairly common at older ages and often derail retirement savings plans, Social Security's disability insurance, spouse and survivor benefits, and progressive benefit formula may provide important protections. By contrast, traditional employer-sponsored pension benefits may be especially vulnerable to health and employment shocks immediately before benefit take-up, because pension wealth generally grows rapidly near the end of the career and workers forfeit these increases if they separate early. This study examines the impact of disability onset and job layoffs on Social Security wealth, traditional employer-sponsored pension wealth, and other household wealth for a nationally representative sample of workers age 51 to 55 in 1992.
Highlights
Health and employment shocks are fairly common at older ages and often derail retirement savings plans
About 19 percent of adults age 51 to 61 in 1992 were laid off from their jobs at some point before 2002, and about one-third developed serious health problems that limited their work ability over the 10-year period (Johnson, Mermin, and Uccello 2005). People who lose their jobs in the years leading up to retirement or are forced by health problems to reduce their work hours generally have less money available for retirement savings than people who remain at work until their planned retirement age
This paper examines the impact of health and employment shocks on the value of Social Security wealth, traditional employer-sponsored pension wealth, and other household wealth
Summary
Health and employment shocks are fairly common at older ages and often derail retirement savings plans. About 19 percent of adults age 51 to 61 in 1992 were laid off from their jobs at some point before 2002, and about one-third developed serious health problems that limited their work ability over the 10-year period (Johnson, Mermin, and Uccello 2005). The system’s disability insurance provides some people whose health problems limited their work histories with more generous retirement benefits than they would otherwise receive. Health and employment shocks in the years leading up to retirement may have smaller effects on future Social Security benefits than on financial wealth holdings. Many people lose substantial pension wealth if they are laid off from their jobs just before qualifying for benefits or are forced by health problems to retire early. Late-career job layoffs and health problems substantially reduce growth in traditional pension wealth
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