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)
NBER Working Paper No. w9586
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
Date posted: March 20, 2003