Defined Benefit Pensions and Homeownership in the Post-Great Recession Era

Abstract

While housing equity accounts for a large portion of many retiree’s savings portfolios, they are not using their equity to increase consumption in retirement as suggested by the Life-Cycle Hypothesis. Defined benefit plans provide a guaranteed source of income in retirement where the household bears no risk, whereas households with a defined contribution plan are subject to potential risk depending on their asset allocation. This paper examines whether having a defined benefit plan mitigated some of the effects of the Great Recession. Using a difference-in-difference analysis, I examine the impact of the Great Recession on homeownership between households with a defined benefit plan compared to those with a defined contribution plan. I find that households with a defined contribution plan were 2.1-2.9 percent less likely to own a home after the Great Recession compared to households with a defined contribution plan. 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. 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.