Consumption and Saving after Retirement

33 Pages Posted: 14 Mar 2022 Last revised: 1 Jul 2022

See all articles by Bent Jesper Christensen

Bent Jesper Christensen

Aarhus University; Aarhus University; Aarhus University

Malene Kallestrup Lamb

Aarhus University - CREATES

John Kennan

University of Wisconsin; National Bureau of Economic Research (NBER)

Date Written: March 2022

Abstract

The paper analyzes consumption decisions of retired workers, using Danish register data. A major puzzle, which motivates much of the analysis below, is that wealth actually increases for a large fraction of the people in our data. One would expect that wealth accumulated before retirement would be used to augment consumption in later life, with the implication that wealth should decline over time. The risk of large out-of-pocket medical expenditures is negligible in Denmark, so although explanations associated with such expenditures might explain similar patterns in U.S. data, these explanations are not plausible for Denmark (and therefore also questionable for the U.S.). Our analysis instead attempts to explain wealth paths using a model that emphasizes fluctuations in the marginal utility of consumption. The results show that a latent state variable extension of the standard life-cycle consumption model is quite successful in explaining the curious observed wealth patterns after retirement for singles.

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Suggested Citation

Christensen, Bent Jesper and Kallestrup Lamb, Malene and Kennan, John, Consumption and Saving after Retirement (March 2022). NBER Working Paper No. w29826, Available at SSRN: https://ssrn.com/abstract=4056780

Bent Jesper Christensen (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Malene Kallestrup Lamb

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

John Kennan

University of Wisconsin ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-262-5393 (Phone)
608-263-3876 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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