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Durable consumption, saving and retirement

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  • Torben Andersen
  • Mikkel Hermansen

Abstract

Durables yield services through life but are also a store of value and both features may have important implications for savings and retirement decisions. Durables also affect bequests and thus induce intergenerational transfers. We show that allowing explicitly for durables has important implications for retirement decisions and responses to various changes in the environment. An improvement in the possibility of freeing housing capital makes the old retire earlier (income effect) while the young plan to retire later since they increase housing demand and reduce financial savings. Considering welfare in stationary equilibrium, we find that a reduction in wealth locking-in in durables is not necessarily welfare improving due to the effects on bequests. From a social welfare perspective, individuals tend to choose too much financial savings, too little durable acquisition and too early retirement. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Torben Andersen & Mikkel Hermansen, 2014. "Durable consumption, saving and retirement," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 825-840, July.
    • Handle: RePEc:spr:jopoec:v:27:y:2014:i:3:p:825-840
    DOI: 10.1007/s00148-013-0490-8
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    More about this item

    Keywords

    Durable consumption; Retirement; Housing; Wealth decumulation; Bequests; D91; J26; R21;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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