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The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement


Michael D. Hurd


RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Susann Rohwedder


RAND Corporation

March 2003

NBER Working Paper No. w9586

Abstract:     
The simple one-good model of life-cycle consumption requires consumption smoothing.' However, British and U.S. households apparently reduce consumption at retirement and the reduction cannot be explained by the life-cycle model. An interpretation is that retirees are surprised by the inadequacy of resources. This interpretation challenges the life-cycle model where consumers are forward looking. However, data on anticipated consumption changes at retirement and on realized consumption changes following retirement show that the reductions are fully anticipated. Apparently the decline is due to the cessation of work-related expenses and the substitution of home production for market-purchased goods and services.

Number of Pages in PDF File: 32

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Date posted: March 20, 2003  

Suggested Citation

Hurd, Michael D. and Rohwedder, Susann, The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement (March 2003). NBER Working Paper No. w9586. Available at SSRN: http://ssrn.com/abstract=389456

Contact Information

Michael D. Hurd (Contact Author)
RAND Corporation ( email )
P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States
310-393-0411 (Phone)
310-393-4818 (Fax)
State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )
Stony Brook, NY 11794
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Susann Rohwedder
RAND Corporation ( email )
P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States
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