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http://ssrn.com/abstract=1092817
 
 

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The Retirement of a Consumption Puzzle


Erik Hurst


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

February 2008

NBER Working Paper No. w13789

Abstract:     
This paper summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Collectively, the recent literature has shown that there is no puzzle with respect to the spending patterns of most households as they transition into retirement. In particular, the literature has shown that there is substantial heterogeneity in spending changes at retirement across consumption categories. The declines in spending during retirement for the average household are limited to the categories of food and work related expenses. Spending in nearly all other categories of non-durable expenditure remains constant or increases. Moreover, even though food spending declines during retirement, actual food intake remains constant. The literature also shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement. Much of this heterogeneity, however, can be explained by households involuntarily retiring due to deteriorating health. Overall, the literature shows that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.

Number of Pages in PDF File: 32

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Date posted: February 13, 2008  

Suggested Citation

Hurst, Erik, The Retirement of a Consumption Puzzle (February 2008). NBER Working Paper No. w13789. Available at SSRN: http://ssrn.com/abstract=1092817

Contact Information

Erik Hurst (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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