Retirement Consumption and Pension Design

127 Pages Posted: 22 Sep 2021

See all articles by Jonas Kolsrud

Jonas Kolsrud

Uppsala University

Camille Landais

London School of Economics & Political Science (LSE) - London School of Economics; Centre for Economic Policy Research (CEPR)

Daniel Reck

London School of Economics & Political Science (LSE)

Johannes Spinnewijn

London School of Economics & Political Science (LSE)

Date Written: August 1, 2021

Abstract

This paper develops and implements a framework that leverages consumption data to evaluate the welfare effects of pension reforms. Several countries have reformed their pension profiles to incentivize later retirement. Using administrative data in Sweden, we find that such pension reforms entail substantial consumption smoothing costs. On average, individuals retiring later have higher consumption levels than those retiring earlier, implying that recent pension reforms redistributed from low- to high-consumption households. We show that the differences in retirement consumption are mostly driven by differential changes in consumption around retirement, and also that the marginal propensities to consume are the lowest for late retirees. Accounting for selection on health and life expectancy further increases the redistributive cost of recent reforms. The cost of incentivizing later retirement is, however, lowest between the early and normal retirement age, where we document a striking non-monotonicity in consumption levels. We find similar patterns in consumption data from other countries, including the nonmonotonicity, suggesting our findings are not unique to Sweden.

Suggested Citation

Kolsrud, Jonas and Landais, Camille and Reck, Daniel and Spinnewijn, Johannes, Retirement Consumption and Pension Design (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3928699

Jonas Kolsrud (Contact Author)

Uppsala University ( email )

Camille Landais

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Daniel Reck

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Johannes Spinnewijn

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
00 44 (0) 20 7955 7022 (Phone)

HOME PAGE: http://econ.lse.ac.uk/staff/spinnewijn_johannes/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
36
PlumX Metrics