Working Paper: NBER ID: w8735
Authors: John Ameriks; Andrew Caplin; John Leahy
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.
Keywords: Retirement; Consumption; Expectations; Stock Market
JEL Codes: E2; D1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected stock market appreciation (G19) | gap between expected and realized consumption (E21) |
| stock market participation (G10) | consumption outcomes (E21) |
| gap between expected and realized consumption (E21) | actual consumption at retirement (D14) |
| expected consumption (D12) | actual consumption at retirement (D14) |