This study presents the first evidence on the relation of consumption to lifetime wealth, based on data from the 1973 and 1975 Retirement History Survey that have been linked to Social Security earnings records. Nearly 500 white, married, fully retired couples ages 62-69 form the basis of the analysis. On average their consumption early in retirement exceeds by 14 percent the income that their financial, pension and Social Security wealth can generate. This implies that their saving, both private and through Social Security, is insufficient to sustain consumption throughout the rest of their lives. Additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement. These two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate, coupled with either a bequest motive or uncertainty about the length of life. They also imply that, even when combined with private pensions and savings, Social Security in the United States today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
0930.
Length: Date of creation: Sep 1984 Date of revision: Handle: RePEc:nbr:nberwo:0930
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References listed on IDEAS 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.:
Kotlikoff, Laurence J & Spivak, Avia & Summers, Lawrence H, 1982.
"The Adequacy of Savings,"
American Economic Review,
American Economic Association, vol. 72(5), pages 1056-69, December.
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Laurence J. Kotlikoff & Lawrence H. Summers, 1981.
"The Adequacy of Savings,"
NBER Working Papers
0627, National Bureau of Economic Research, Inc.
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Michael D. Hurd & John B. Shoven, 1983.
"The Economic Status of the Elderly,"
NBER Chapters,
in: Financial Aspects of the United States Pension System, pages 359-398
National Bureau of Economic Research, Inc.
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