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Can the retirement consumption puzzle be solved?

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Author Info
Sarah Smith () (Institute for Fiscal Studies and Centre for Market and Public Organisation)

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Abstract

This paper uses UK panel data to shed further light on the fall in spending at retirement (the “retirement-consumption puzzle”). It compares the profiles of spending and well-being at retirement for different groups, defined according to whether retirement is voluntary or involuntary. Where retirement is voluntary, food spending and individual well-being are largely smoothed through retirement; where retirement is involuntary, both food spending and well-being fall. This is consistent with the retirement consumption puzzle being linked to negative wealth shocks. However, there remains one group for whom retirement appears to be voluntary, yet whose spending falls. Fully resolving the puzzle requires a better understanding of how the nature of retirement links to spending and of how different groups substitute leisure for consumption.

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File URL: http://www.ifs.org.uk/wps/wp0407.pdf
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Publisher Info
Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W04/07.

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Length: 28 pp
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:ifs:ifsewp:04/07

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Related research
Keywords: Retirement spending; panel data;

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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Cited by:
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  1. Melanie Lührmann, 2007. "Consumer Expenditures and Home Production at Retirement - New Evidence from Germany," MEA discussion paper series 07120, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  2. Mette Gørtz, 2006. "Heterogeneity in Preferences and Productivity – Implications for Retirement," CAM Working Papers 2006-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  3. Michael D. Hurd & Susann Rohwedder, 2006. "Some Answers to the Retirement-Consumption Puzzle," NBER Working Papers 12057, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Michael D. Hurd & Susann Rohwedder, 2005. "Changes in Consumption and Activities in Retirement," Working Papers wp096, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  5. Paivi Kankaanranta, 2006. "Consumption Over the Life Cycle: Theory and Empirical Regularities," Research Reports 118, University of Turku, Department of Economics. [Downloadable!]
  6. Mathieu Lefebvre, 2006. "Population ageing and consumption demand in Belgium," CREPP Working Papers 0604, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège. [Downloadable!]
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This page was last updated on 2009-11-27.

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