Retirement and Consumption in a Life Cycle Model

49 Pages Posted: 5 Sep 2007

See all articles by David M. Blau

David M. Blau

University of North Carolina (UNC) at Chapel Hill - Department of Economics; IZA Institute of Labor Economics

Date Written: August 2007

Abstract

Consumption expenditure declines sharply at the time of retirement for many households, but the majority maintain a smooth consumption path. A simple life cycle model with uncertainty about the time of retirement can account for this pattern. A richer version of the model is calibrated to data from the Health and Retirement Study. The median change in consumption expenditure at retirement generated by the model is zero, while the mean is negative, matching the HRS data. However, the magnitude of the drop in consumption among households that experience a decline is too small in the model compared to the data.

Keywords: retirement, consumption, saving, life cycle model

JEL Classification: J26, H55

Suggested Citation

Blau, David M., Retirement and Consumption in a Life Cycle Model (August 2007). IZA Discussion Paper No. 2986, Available at SSRN: https://ssrn.com/abstract=1012346 or http://dx.doi.org/10.2139/ssrn.1012346

David M. Blau (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall
Chapel Hill, NC 27599
United States
919-966-3962 (Phone)
919-966-4986 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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