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Involuntary Retirement and the Resolution of the Retirement-Consumption Puzzle: Evidence from Australia

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  • Garry F. Barrett
  • Matthew Brzozowski

Abstract

A substantial body of international research has shown that household expenditure on food and non-durables significantly decreases at the time of retirement -- a finding that is inconsistent with the standard life-cycle model of consumption if retirement is an anticipated event. This fall in expenditure has become known as the `retirement- consumption puzzle.' We analyze rich Australian panel data to assess the Australian evidence on the puzzle. We find strong evidence of a fall in expenditures on groceries, food consumed at home and outside meals with retirement. The observed decline in expenditure is explained by a subset of households experiencing an unanticipated wealth shock, such as a major health event or long-term job loss, at the time of retirement. This finding is corroborated by an analysis of alternative measures of household well-being, including indicators of financial hardship, and self-reported financial and life satisfaction. For the majority of households retirement is anticipated and there is no decline in economic welfare at retirement. However, for an important minority, retirement is `involuntary' and these households experience a marked decline across all indicators of economic well-being.

Suggested Citation

  • Garry F. Barrett & Matthew Brzozowski, 2010. "Involuntary Retirement and the Resolution of the Retirement-Consumption Puzzle: Evidence from Australia," Social and Economic Dimensions of an Aging Population Research Papers 275, McMaster University.
    • Handle: RePEc:mcm:sedapp:275
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    Cited by:

    1. Garry F. Barrett & Milica Kecmanovic, 2012. "Changes in Subjective Well-being with Retirement: Assessing Savings Adequacy in Australia," Social and Economic Dimensions of an Aging Population Research Papers 296, McMaster University.
    2. Cathy Honge Gong & Xiaojun He, 2019. "Factors Predicting Voluntary and Involuntary Workforce Transitions at Mature Ages: Evidence from HILDA in Australia," IJERPH, MDPI, vol. 16(19), pages 1-20, October.
    3. Trinh Le & Euan Richardson, 2023. "Expenditure patterns of New Zealand retiree households," Working Papers 23_07, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    Consumption Smoothing; Household Expenditure; Retirement;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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