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The Retirement-Consumption Puzzle Anticipated and Actual Declines in Spending at Retirement

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  • Michael D. Hurd
  • Susann Rohwedder

Abstract

The simple one-good model of life-cycle consumption requires “consumption smoothing.” However, British and U.S. households apparently reduce consumption at retirement and the reduction cannot be explained by the life-cycle model. An interpretation is that retirees are surprised by the inadequacy of resources. This interpretation challenges the life-cycle model where consumers are forward looking. However, data on anticipated consumption changes at retirement and on realized consumption changes following retirement show that the reductions are fully anticipated. Apparently the decline is due to the cessation of work-related expenses and the substitution of home production for market-purchased goods and services.

Suggested Citation

  • Michael D. Hurd & Susann Rohwedder, 2005. "The Retirement-Consumption Puzzle Anticipated and Actual Declines in Spending at Retirement," Working Papers WR-242, RAND Corporation.
  • Handle: RePEc:ran:wpaper:wr-242
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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