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Abstract

Previous research finds a systematic decrease in consumption at retirement, a finding that is inconsistent with the Life-Cycle/Permanent Income Hypothesis if retirement is an expected event. In this paper, we use workers' subjective beliefs about their retirement dates as an instrument for retirement. After demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions, we still find a retirement consumption decline for workers who retire when expected. However, our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies. Finally, we examine a number of hypotheses that have been put forward to explain the retirement consumption decline. We find little empirical support for these explanations in our data.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10257.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10257

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Find related papers by JEL classification:

• D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
• D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

This paper has been announced in the following NEP Reports:

• NEP-ALL-2004-02-01 (All new papers)
• NEP-DGE-2004-02-01 (Dynamic General Equilibrium)
• NEP-LAB-2004-02-01 (Labour Economics)
• NEP-MAC-2004-02-01 (Macroeconomics)
• NEP-MIC-2004-02-01 (Microeconomics)

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