Unexpected Inheritance Leads To Early Retirement!

By Staff

Monday, August 17, 2009, 14:38

There are no retirement policies for the many private companies that are the attraction of the day. Therefore many professionals plan their retirement well in advance. However the news is that unexpected inheritance may lead to their early retirement too.

The widely held economic theory proves that people value leisure time, and will parlay newfound wealth into less work. Older workers who get a jolt of cash out of the blue are more likely to cash in on early retirement. At least some people approaching retirement work just for the money, not for love of the job. When unexpected wealth comes their way, a significant number respond by retiring early, not by continuing to work and buying a nice car or taking a vacation.

The recent downturn in the stock market, shedding light on whether some workers might wind up on the job longer because of deep, recession-driven losses in stock portfolios and other investments. However a negative shock to the wealth may lead some people to work longer than they expected. The retirement plans in households that were heavily invested in the stock market will be most affected by the economic crisis, which underscores the importance of maintaining a well-diversified portfolio.

Over the past two decades, workers have become increasingly more responsible for making investment decisions as there has been a shift away from formula-based defined benefit pension plans to account-based defined contribution pension plans. The recent turbulence in the financial markets highlights the importance of thinking about how your retirement plan is invested and the risks to which you are exposed.

One of the effects it could have is driving people to retire earlier, which has implications ranging from tax revenue to the solvency of Social Security. Retirement is an important economic phenomenon because as people exit the work force they go from being producers and savers to drawing down both their own assets and the government"s resources. They say that the odds increased significantly as windfalls grew.

Finance professors Jeffrey R. Brown and Scott Weisbenne conducted this study. A research article describing the study has been published in the Review of Economics and Statistics.