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Changes in Consumption and Activities in Retirement

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Author Info
Michael D. Hurd (RAND and NBER)
Susann Rohwedder (RAND)

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Abstract

The simple one-good model of life-cycle consumption requires “consumption smoothing.” According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the retirement-consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life-cycle model where consumers are assumed to be forward looking. Using panel data on anticipated consumption changes at retirement and on recollected consumption changes following retirement, we find that the median recollected change in spending at retirement is zero and that the recollections are broadly consistent with anticipations. Based on a measure of total spending in true panel we find that the actual mean and median changes are slightly positive. Therefore, we find no retirement-consumption puzzle.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp096.

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Length: 30 pages
Date of creation: Mar 2005
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Handle: RePEc:mrr:papers:wp096

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mark Aguiar & Erik Hurst, 2004. "Consumption vs. Expenditure," NBER Working Papers 10307, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. John Ameriks & Andrew Caplin & John Leahy, 2002. "Retirement Consumption: Insights from a Survey," NBER Working Papers 8735, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September. [Downloadable!] (restricted)
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  6. John Rust, 1989. "Behavior of male workers at the end of the life-cycle: an empirical analysis of states and controls," Discussion Paper / Institute for Empirical Macroeconomics 6, Federal Reserve Bank of Minneapolis. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
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  8. David M. Blau, 2007. "Retirement and Consumption in a Life Cycle Model," IZA Discussion Papers 2986, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Raffaele Miniaci & Chiara Monfardini & Guglielmo Weber, 2003. "Is there a retirement consumption puzzle in Italy?," IFS Working Papers W03/14, Institute for Fiscal Studies. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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!]
  2. Eva Sierminska & Yelena Takhtamanova, 2007. "Wealth effects out of financial and housing wealth: cross country and age group comparisons," Working Paper Series 2007-01, Federal Reserve Bank of San Francisco. [Downloadable!]
  3. Susann Rohwedder, 2006. "Self-Assessed Retirement Outcomes: Determinants and Pathways," Working Papers wp141, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  4. Paivi Kankaanranta, 2006. "Consumption Over the Life Cycle: Theory and Empirical Regularities," Research Reports 118, University of Turku, Department of Economics. [Downloadable!]
  5. 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!]
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  6. José M. Labeaga & Rubén Osuna, 2007. "Expenditures at retirement by Spanish households," Working Papers 2007-36, FEDEA. [Downloadable!]
  7. Päivi Kankaanranta, 2006. "Consumption Over the Life Cycle: A Selected Literature Review," Discussion Papers 7, Aboa Centre for Economics. [Downloadable!]
  8. Maarten van Rooij & Clemens Kool & Henriëtte Prast, 2005. "Risk-return preferences in the pension domain: are people able to choose?," DNB Working Papers 025, Netherlands Central Bank, Research Department. [Downloadable!]
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