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Life-Cycle Effects on Consumption and Retirement

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  • Daniel S. Hamermesh

Abstract

The effects on consumption and retirement of characteristics of the life cycle, especially the length of the horizon, are examined. At any given age people will work more and consume less if they expect to live longer. This and other propositions are tested on several sets of data. The Terman sample of gifted individuals (320 in 1972, 228 in 1977) is used to relate work status to the length of the horizon, as proxied by parents' longevity. The results suggest the expected positive effect on effort, but its magnitude is quite small. The panel from the Retirement History Survey is used, and life-cycle effects on consumption and retirement are estimated jointly for 1973 and 1975. There is a weak small effect of a more distant horizon (proxied by the number of living parents) in increasing work effort and a stronger, but still fairly small effect in reducing consumption; goods and leisure are consumed jointly, suggesting their complementarity in household production; and spending propensities out of Social Security wealth are far below those out of pension wealth. The small effect of changes in the horizon on work effect suggests the rapid secular increase in longevity has produced a disproportionate increase in people's lifetime demand for leisure. The implied small increase in lifetime income and the slight reduction in consumption among persons with longer horizons indicate that increased longevity has not been met with sufficient spending cuts to enable people to maintain real consumption over their longer lifetimes.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0976.

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Date of creation: Sep 1982
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Publication status: published as Hamermesh, Daniel S. "Life-Cycle Effects on Consumption and Retirement." Journal of Labor Economics, Vol.2, No. 3, (July 1984), pp. 353-370.
Handle: RePEc:nbr:nberwo:0976

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Cited by:
  1. Manuel Flores & Melchor Fern√°ndez, 2011. "Age discrimination on wages as a determinant of older workers - labour participation in Spain (refereed paper)," ERSA conference papers ersa10p1176, European Regional Science Association.
  2. Anton Nivorozhkin & Ludmila Nivorozhkina & Kamila Abazieva, 2013. "Expenditures and Income Adequacy at Retirement," Economics Bulletin, AccessEcon, vol. 33(3), pages 2017-2023.
  3. Susan Pozo & Stephen A. Woodbury, . "Pensions, Social Security, and Asset Accumulation," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research spsaw1985, W.E. Upjohn Institute for Employment Research.
  4. Pecchenino, Rowena A & Pollard, Patricia S, 1997. "The Effects of Annuities, Bequests, and Aging in an Overlapping Generations Model of Endogenous Growth," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(440), pages 26-46, January.
  5. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers, Netherlands Central Bank, Research Department 188, Netherlands Central Bank, Research Department.
  6. Michael Perry, 2005. "Estimating Life Cycle Effects of Survival Probabilities in the Health and Retirement Study," Working Papers, University of Michigan, Michigan Retirement Research Center wp103, University of Michigan, Michigan Retirement Research Center.
  7. 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.
  8. Gensowski, Miriam, 2014. "Personality, IQ, and Lifetime Earnings," IZA Discussion Papers 8235, Institute for the Study of Labor (IZA).
  9. Tetsuji Yamada & Tadashi Yamada, 1987. "Social Security and Earlier Retirement in Japan: Cross-Sectional Evidence," NBER Working Papers 2442, National Bureau of Economic Research, Inc.
  10. Tetsuji Yamada & Tadashi Yamada, 1988. "The Effects of Japanese Social Security Retirement Benefits on Personal Savings and Elderly Labor Force Behavior," NBER Working Papers 2661, National Bureau of Economic Research, Inc.
  11. Rainer Winkelmann, 2002. "Subjektive Daten in der empirischen Wirtschaftsforschung: Probleme und Perspektiven," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0207, Socioeconomic Institute - University of Zurich, revised Jul 2002.
  12. Nivorozhkina, Ludmila & Nivorozhkin, Anton & Abazieva, Kamilla, 2010. "Drop in consumption associated with retirement. The regression discontinuity design approach," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 19(3), pages 112-126.
  13. Anders, Sven, 2010. "Ageing And Consumption – The Impact Of Demographic Change On Food Expenditure Patterns," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany, European Association of Agricultural Economists;Agricultural and Applied Economics Association 116442, European Association of Agricultural Economists;Agricultural and Applied Economics Association.
  14. Olivia S. Mitchell, 1982. "The Labor Market Impact of Federal Regulation: OSHA, ERISA, EEO, and Minimum Wage," NBER Working Papers 0844, National Bureau of Economic Research, Inc.

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