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Retirement Consumption and Pension Design

Author

Listed:
  • Jonas Kolsrud
  • Camille Landais
  • Daniel Reck
  • Johannes Spinnewijn

Abstract

This paper analyzes consumption to evaluate the distributional effects of pension reforms. Using Swedish administrative data, we show that on average, workers who retire earlier consume less while retired and experience larger drops in consumption around retirement. Interpreted via a theoretical model, these findings imply that reforms incentivizing later retirement incur a substantial consumption smoothing cost. Turning to other features of pension policy, we find that reforms that redistribute based on early-career labor supply would have opposite-signed redistributive effects, while differentiating on wealth may help to target pension benefits toward those who are vulnerable to larger drops in consumption around retirement.

Suggested Citation

  • Jonas Kolsrud & Camille Landais & Daniel Reck & Johannes Spinnewijn, 2024. "Retirement Consumption and Pension Design," American Economic Review, American Economic Association, vol. 114(1), pages 89-133, January.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:1:p:89-133
    DOI: 10.1257/aer.20221426
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    Cited by:

    1. Zhao, Weimin & Chen, Na, 2024. "Does old-age security promote rural residents' consumption? A decomposition based on contribution and replacement rates," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 817-830.
    2. Ivanov, Katerina & Tian, Weidong, 2024. "Optimal early retirement with target wealth," Journal of Economic Dynamics and Control, Elsevier, vol. 167(C).
    3. Kruse, Herman & Myhre, Andreas S., 2025. "Early retirement provision for elderly displaced workers," The Journal of the Economics of Ageing, Elsevier, vol. 31(C).
    4. Oh, Jongseok & Son, Seho & Lee, Kun, 2025. "Exclusion from a ‘mandatory’ pension scheme: Late-stage dropouts from the National Pension System in South Korea," The Journal of the Economics of Ageing, Elsevier, vol. 31(C).
    5. Jamie Hentall-MacCuish, 2024. "Costly attention and retirement," IFS Working Papers W24/59, Institute for Fiscal Studies.
    6. Huang, Wei & Lei, Xiaoyan & Zhang, Chunfeng, 2025. "Green retirement: The impact of retirement on carbon emissions through consumption and income dynamics," Journal of Comparative Economics, Elsevier, vol. 53(3), pages 727-753.
    7. Inukai, Shinya, 2025. "The impacts of raising the public pension eligibility age on time allocation of elderly people: Evidence from Japan," Journal of Economic Behavior & Organization, Elsevier, vol. 233(C).

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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