The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement

33 Pages Posted: 11 Jul 2005

See all articles by Michael D. Hurd

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)

Susann Rohwedder

RAND Corporation

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

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.

Keywords: Retirees-economic conditions, retirement-economic aspects, consumption

JEL Classification: D91, J26

Suggested Citation

Hurd, Michael D. and Rohwedder, Susann, The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement (February 2005). RAND Working Paper Series No. WR-242, Michigan Retirement Research Center Research Paper No., 2004-069, Available at SSRN: https://ssrn.com/abstract=754425 or http://dx.doi.org/10.2139/ssrn.754425

Michael D. Hurd (Contact Author)

RAND Corporation ( email )

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State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )

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Susann Rohwedder

RAND Corporation ( email )

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