Sunday, October 25, 2009

How Important Is the Stock Market for the Average Retiree?


Contrary to most of what you hear on the radio and you read in newspapers and magazines the typical American retiree is not as dependent on the performance of the stock market as many people think. The following is a table of the sources of income among the second quartile of older Americans, that is, from the 50th to the 75th percentile:

Social Security benefits....... 54.60%
Pensions....................... 22.00%
Earnings....................... 11.70%
Assets......................... 09.00%
Other Income................... 02.60%
Public Assistance.............. 00.30%


As the above table illustrates very clearly this group — which is above median, although not at the top — is highly dependent on Social Security benefits for more than half of their income.Asset income is, on the other hand , is rather small. Obviously as one moves down to the third quartile and then the fifth quartile then the share of income derived from the stock market disappears.

Of course the portion of income derived from pensions is affected by the stock market but for most Americans the day to day fluctuations in stock prices are not as seminal as those on Wall Street would like us to believe that they are. What do you think?

21 comments:

Dan Trimarchi said...

Obviously the statistics posted show that over half of many retiree's incomes are not affected by the stock market, however, with 22% of their income being affected by the stock market I think it's difficult to say that it's unimportant. 22% of one's income is a fairly substantial amount, therefore, I think the state of the stock market should be relatively important to the average retiree.

ghassan karam said...

Dan,
The 22% is nor 401 K but actual pensions that the firms are expected to meet. One can argue that these are affected by the stock market but ultimately they are an obligation carried by the corporation. The 9% income from assets is totally from the stock market.
My point is only intended to demonstrate that the wealthy are much more affected by the stock market than the rest of the population, at least for retirement income.

Elias Maus said...

The statistics show that retiress are not affected by the stock market because most of them are receving money from s.S. but the wealthy can be affected because they are more likely to be investing the money in the stock market.

David Walker said...

According to the table it shows that a very high percentage of the retiree is being affected by the stock market. 22% of persons income is a large amount and those retired should be paying attention to the stock market every second. People should have a great concern what is being done exactly with that 22%, I know I would.

Justyna Sokol said...

I do agree that the wealthy should pay more attention to the stock market in comparison to the average retiree. However for any person 22% is a very large part of one's incomee. Once a person retires it is very important that they stay updated on the stock market to be sure how their income is distributed.

Anonymous said...

Twenty two per cent is a substantial proportion out of any income, especially that of a retired person. A wealthier person who is retired has enough money to invest in the market and still be able to take on the risk of investing in certain types of securities. I think the attention they should give to the market depends on the type of security, their position, amount invested, and the current condition of the market. - Jim

Brian Keegan said...

I think that the amount of income derived directly from the stock market is a fairly useless assessment. I understand that this clearly demonstrates that plunging values on the stock market affect the elderly much less than they are generally assumed to. My issue with this however is the fact that no single figure stands on its own. There is no way to say the impacts of the economic downturn affect one part of the population but not the other. There are no lines that economic activity simply doesn't cross. Especially with the way assets are divided and redistributed it is nearly impossible to isolate the effects of the recession. While only 9% of these retiree's income comes directly from the stock market the other aspects of a persons income will also be indirectly affected by plunging values on the market. For example it is a pretty simple step from the recession on the stock market to a decrease in earnings. Most people will recognize that a recession can easily affect the amount any person earns. This effect is magnified by the fact that people of this age group tend to be less desirable in terms of job competition. That is to say that in decision making for layoffs or new hires the perceived value of an older person is generally lower than that of a much younger person.
I believe that while these statistics are most likely highly accurate and may be used to draw some conclusions, the conclusion that less wealthy retirees are mostly isolated from the recession is an erroneous one.

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autoparts said...
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len polhemus said...

I would like to Prof. Karam's statement on the 401k comment. Retirement pensions may be an obligation to pay to the retirees, but as we have seen in the past this is not always a fulfilled obligation. Since these pension funds are big investors into the market, yes the have to take a much lower risk and act diligently with the money, but are ultimately affect by market flucuation. When our markets decreased many began to worry about the retirement pension that was "guarnteed" for their years of service. Looking at the numbers we can see that over 50% in the 3rd quartile depend on Social Security, meaning that a much when you add the 1st and 2nd quartiles to this figure the amount of the older genreation that depend on SS instead of other means is quite scary. My point with all of this is maybe instead of the governemt worrying about the stock market prices and bailing out companies, they should be working to figure out how to get SS back under control. More workers are begining to retire and I believe the last figure was 3 or 4 current people in the work force today are necessary to support 1 on SS. So no what is the big picture? When SS fails or must decrease payouts, we lose not only a large buying power but could possibly affect our social economic status on a global front.

Megan Murphy said...

I think that the stock market is important to the average retiree because even though not all of their income is affected about 22 percent of it is and that amount is still important especially in today's society.

Megan Murphy said...

I think that the stock market is important to the average retiree because even though not all of their income is affected about 22 percent of it is and that amount is still important especially in today's society.

Abeer Ghani said...

Social security benefits are surprisingly the highest dependent source of income for retirees. I assumed that stock markets were what retirees were most dependent on. That and personal savings and pension plans.

Dana Weingartner said...

I find it very interesting that such a large percentage of elderly people's income is from social security. I was not under that impression at all.
I also think it is still important to note that the stock market does play a large role, since it effects the country as a whole, thus trickling down to the individual, even if it's not their main dependency.

Pete Zerka said...

Though it does vary from person to person, i would have to say that regardless of the percentage the stock market has a significant importance on any retiree. The average retiree is not making the same amount of money that they once were and 22% of an income really is a substantial amount

Stephen Druan said...

I do believe that the stock market is important to the average retiree. 22% of one's income is a strong statistic. Actually, that is a risky number because the stock market is very unpredictable and having it be a portion of your income can be scary!

Katie Ford said...

I believe that all though the 50-75% of retiree's are not directly effected by the stock market, I would like to state that the majority of there income is from social security as well as other things, that would be driectly influneced by a market change thus indirectly impacting this group of people

Aaron Berube said...

I agree that the retirement income of the wealthy is much more affected by the stock market than the rest of the population. This is simply because a large amount of people who own stocks in the first place are middle to upper class citizens. When a person is wealthy, and are offered stock options for retirement, they tend to accept the offer. Other wealthy people may instead chose to invest much of their money later one so that during his/her retirement they have a source of income from the stocks. Rarely do you see people other than the wealthy depend on much of anything besides their social security benefits, or pensions.