Panel Paper:
Defined Benefit Pensions and Homeownership in the Post-Great Recession Era
*Names in bold indicate Presenter
The Great Recession of 2007-2009 was one of the most severe economic downturns in American history and was unique among recent recessions due to simultaneous shocks in the labor, stock, and housing markets. Many older Americans saw a decline in home value simultaneous with a reduction in their retirement portfolios and savings.
Over the last 30 years, American employers have shifted away from defined benefit plans in favor of defined contribution plans (Butrica et al. 2009; Hurd and Rohwedder 2010). Defined benefit plans provide a guaranteed source of income in retirement whereas defined contribution plans carry risk. It is possible that households with defined contribution plans were willing to forgo homeownership to offset some of the losses experienced from the Great Recession that households with a defined benefit plan were able to withstand.
This paper studies older Americans aged 55 and older using data from the Health and Retirement Study from 1998-2014. I explore the role of defined benefit plans in homeownership after the Great Recession. Specifically, I examine whether households that had a defined contribution plan were willing to extract housing equity by foregoing homeownership and opting to rent instead, to offset some of the losses experienced due to the recession.
I find that while all households saw losses in non-housing related wealth following the recession, households with a defined contribution plan were 2.1-2.9 percent less likely to own a home following the Great Recession compared to households with a defined benefit plan. I find this change to be largely concentrated in households where at least one person is working and residing in urban households.
This research contributes to the understanding of potential shifts in the use of housing equity in retirement. Future retirees face a potentially riskier housing market and are less likely to have a defined benefit plan. As a result, future retirees may be more willing to use their housing equity to increase consumption in retirement than was observed in past generations. The findings could have broad impacts on housing markets, the financial situations of older adults, and policies to help protect future retirees’ financial security in future economics downturns.
Full Paper: