Cutting One’s Coat According to One’s Cloth – How did the Great Recession affect retirement resources and expenditure goals?

Pension and housing wealth fell substantially during the Great Recession in many industrialized countries. This raised questions about the development of retirement savings adequacy. Using a unique combination of survey and administrative panel data from before and after the Great Recession in the Netherlands, we investigate co-movements between wealth and retirement expenditure goals. We separate `pure’ wealth effects from common factors such as general pessimism. The estimates show that a shock in annuitized pension wealth of 100 euros reduced retirement expenditure goals with 23-33 euros. Whereas pensions drive the revision of goals for older individuals, the results indicate that individuals between the ages of 25 and 49 are more sensitive to housing wealth. Furthermore, while other studies find that the reaction of current consumption to financial shocks is relatively strong for low-income households, we document that long term expenditure goals are adjusted more by high-income households. Simulations show that the fraction of individuals falling short with regard to their own retirement expenditure goal would almost have doubled during the Great Recession if individuals would not have adjusted their retirement expenditure goals downward.