Recession Led to Changes in Retirement Planning

A 2009 follow-up survey of households that completed the 2007 Survey of Consumer Finances (SCF) found changes in families’ savings intentions or behavior, their tolerance for financial risk, and their retirement planning.

In their report on the findings, released by the National Bureau of Economic Research, members of the Board of Governors of the Federal Reserve Board said overall, the data suggest a shift toward caution: most families – especially those whose position in the wealth distribution improved – reported a desire for less risk and for higher reserve savings. Further, in most cases, heads of households that were working full-time plan on extending their working lives.  

For families headed by a full-time worker aged 63 or younger in 2007 who was still working full-time in 2009, the median change in the worker’s anticipated retirement age was zero across all wealth change groups, but those workers who did shift their anticipated retirement date tended to report that they would stop working full-time at date later than what they had reported in 2007. At least 25% of full-time household heads reported postponing retirement by two years.   

The largest fraction of household heads who plan to stop working two years earlier than planned in 2007 are the heads of households who moved up the wealth distribution by ten or more percentile points, according to the report. 

The analysis of families’ reported willingness to take financial risk in investing and saving suggests that the recession and other economic developments may have led families to become somewhat more cautious. Across the array of relative wealth changes, except for families in the highest percentile-change group, more families were unwilling to take any financial risk in 2009. The increases in this proportion were roughly 5% to 6% for families whose rank rose or fell by no more than ten percentile points, but the shift in the proportion of families unwilling to take risk was twice as large for families that moved down the wealth distribution by more than ten percentile points.  

In addition, the analysis found that most families in each of the relative wealth change categories reported greater desired precautionary savings in 2009 than they had in 2007. Some families reported much higher preferred buffer savings: nearly 30% of families who moved up by three or more percentile points and nearly a quarter of all other families reported desired precautionary savings that were at least 200% higher in 2009 than in 2007.

The National Bureau of Economic Research working paper indicated that the level of wealth fell between 2007 and 2009 for 63% of families, and the median decline was 18% of 2007 wealth. 

According to the report authors, a sizable fraction of households experienced gains in wealth, and some families’ financial situation changed little, at least on net, between 2007 and 2009.  

The largest median absolute losses were for families headed by persons in the four oldest age groups, which also have progressively greater median wealth. The variation in absolute wealth changes was greatest for the 55-to-64 group.  

The report indicates that changes in families’ wealth over the period appear to reflect changes in asset values (particularly the value of homes, stocks, and businesses) rather than changes in the level of ownership of assets and debts or in the amount of debt held.   

The aggregate share of the primary residence as a fraction of total assets declined 1.5 percentage points, and the share of stock and business equity fell by nearly five percentage points. The ratio of total debt to assets, the leverage ratio, rose by about 3 percentage points to nearly 18% over the period, primarily due to a decline in the value of assets rather than an increase in debt.  

The paper may be purchased for $5 at