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The Retirement Consumption Conundrum: Evidence from a Consumption Survey

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  • Johnathan Fisher
  • David S. Johnson
  • Joseph Marchand
  • Timothy M. Smeeding
  • Barbara Boyle Torrey

Abstract

While the life-cycle hypothesis predicts that consumption remains smooth during the transition from work into retirement, recent studies have shown that consumption declines at retirement. This empirical result has been referred to as the retirement consumption puzzle. Previous literature has most often relied on food expenditures to estimate the decline in consumption at retirement. We add to this literature by using broader definitions of consumption data from the Consumer Expenditure Survey (CEX), which is a survey designed to estimate total household expenditures. We conduct cohort analysis, using data on four cohorts over 20 years from 1984 to 2003. Our results using only food expenditures are on the lower end of the distribution of existing results. As we use broader measures of consumption, our results suggest that the retirement consumption conundrum decreases by more than half. Further, another contribution of this analysis is to widen the focus of the study of the well-being of the elderly. The retirement consumption puzzle does not tell the whole story on the well-being of the elderly. While we find that consumption-expenditures decrease by about 2.5 percent when individuals retire, expenditures continue to decline at about a rate of 1 percent per year after that.

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File URL: http://crr.bc.edu/working-papers/the-retirement-consumption-conundrum-evidence-from-a-consumption-survey/
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Bibliographic Info

Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2005-14.

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Length: 34 pages
Date of creation: Oct 2005
Date of revision: Dec 2005
Handle: RePEc:crr:crrwps:wp2005-14

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  1. Steven Haider & Melvin Stephens Jr., 2004. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," NBER Working Papers 10257, National Bureau of Economic Research, Inc.
  2. Slesnick, Daniel T, 1994. "Consumption, Needs and Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 677-703, August.
  3. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
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