Changes in Consumption and Activities in Retirement
34 Pages Posted: 17 Feb 2008
Date Written: March 2005
Abstract
The simple one-good model of life-cycle consumption requires "consumption smoothing." According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the retirement-consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life-cycle model where consumers are assumed to be forward looking. Using panel data on anticipated consumption changes at retirement and on recollected consumption changes following retirement, we find that the median recollected change in spending at retirement is zero and that the recollections are broadly consistent with anticipations. Based on a measure of total spending in true panel we find that the actual mean and median changes are slightly positive. Therefore, we find no retirement-consumption puzzle.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Accounts for the Variation in Retirement Wealth Among U.S. Households?
By B. Douglas Bernheim, Jonathan S. Skinner, ...
-
What Accounts for the Variation in Retirement Wealth Among U.S. Households?
By B. Douglas Bernheim, Jonathan S. Skinner, ...
-
Are Americans Saving "Optimally" for Retirement?
By John Karl Scholz, Ananth Seshadri, ...
-
Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?
-
By Mark Aguiar and Erik Hurst
-
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
By Michael D. Hurd and Susann Rohwedder
-
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
By Michael D. Hurd and Susann Rohwedder
-
Household Production and the Excess Sensitivity of Consumption to Current Income
By Marianne Baxter and Urban J. Jermann
-
Consumption During Retirement: The Missing Link in the Life Cycle
-
The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers