(Un)expected Retirement and the Consumption Puzzle

15 Pages Posted: 28 Feb 2012

See all articles by Margherita Borella

Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche; CeRP - Collegio Carlo Alberto

Flavia Coda Moscarola

Center for Research on Pensions and Welfare Policies (CeRP)

Maria Christina Rossi

University of Torino

Date Written: October 1, 2011

Abstract

In this work we revisit the retirement consumption puzzle using Italian panel data. As emphasized in the literature, the observed consumption drop might be due to unexpected wealth shocks at retirement, which modify optimal consumption plans. Using an Euler equation approach, we test the impact of unexpected retirement on the consumption patterns of individuals around the age of retirement by using the panel component of the Survey of Household Income and Wealth (SHIW). This data set contains information on the expected age of retirement, which can be used to distinguish between expected and unexpected retirement. We furthermore investigate the heterogeneous behaviour of individuals with different levels of education and wealth. We find evidence of a consumption drop at retirement, especially for low-educated people and individuals with low wealth. The consumption drop at retirement seems to be rationally planned by individuals, rather than a response to unexpected retirement.

Keywords: Consumption, life cycle, retirement puzzle, unexpected retirement

JEL Classification: D91, J26

Suggested Citation

Borella, Margherita and Coda Moscarola, Flavia and Rossi, Maria Christina, (Un)expected Retirement and the Consumption Puzzle (October 1, 2011). Netspar Discussion Paper No. 10/2011-116, Available at SSRN: https://ssrn.com/abstract=2012369 or http://dx.doi.org/10.2139/ssrn.2012369

Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy

HOME PAGE: http://https://sites.google.com/site/margheritaborella/

CeRP - Collegio Carlo Alberto

Via Real Collegio, 30
Moncalieri, Turin
Italy
+39 011 647 6525 (Phone)
+39 011 640 3680 (Fax)

Flavia Coda Moscarola

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

Via Real Collegio, 30
Moncalieri, Turin
Italy
+34.011.64 (Phone)
+34.6403680 (Fax)

Maria Christina Rossi (Contact Author)

University of Torino ( email )

Torino
Italy

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