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

Authors

• Michael Hurd
• Susann Rohwedder

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 workrelated expenses and the substitution of home production for market-purchased goods and services.

Full Text

Download PDF

Project

• UM03-10: Consumption and Time-Use Before and After Retirement

Paper ID

WP 2004-069

Publication Type

Working Paper

Publication Year

2004