The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
RAND Working Paper Series No. WR-242
Michigan Retirement Research Center Research Paper No., 2004-069
33 Pages Posted: 11 Jul 2005
There are 2 versions of this paper
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement
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: Suggested Citation
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