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Retirement Consumption: Insights from a Survey

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Author Info
John Ameriks
Andrew Caplin
John Leahy

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Abstract

Prior research has established that consumption falls significantly at retirement. What is not known is the extent to which this fall is anticipated during the working years. Do working households expect such a large fall in consumption upon retirement, or are they taken by surprise? Using data from a new survey, we show that many working households do expect a considerable fall in consumption when they retire. In fact, those who are already retired report significantly smaller falls in consumption than are expected by those who are still working. We show that participation in the stock market plays a dominant role in explaining the gap between expectations and outcomes, indicating that much of the gap is a result of unexpected stock market appreciation. The survey produces new insights into the high level of uncertainty in the period leading up to retirement, and the surprises that may lie in store when households actually retire.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8735.

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Date of creation: Jan 2002
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Handle: RePEc:nbr:nberwo:8735

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
D1 - Microeconomics - - Household Behavior

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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.:
  1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," Working Papers 97035, Stanford University, Department of Economics. [Downloadable!]
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  3. 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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  4. Ted O'Donoghue & Matthew Rabin, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March. [Downloadable!] (restricted)
  5. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February. [Downloadable!] (restricted)
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  6. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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