Working Paper: NBER ID: w9586
Authors: Michael 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.
Keywords: No keywords provided
JEL Codes: D91; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| households anticipate a reduction in consumption at retirement (D14) | actual reductions reported post-retirement (J32) |
| uncertainty regarding the timing of retirement (J26) | decrease in lifetime resources and subsequent consumption (D15) |
| increased leisure time (J29) | changes in consumption patterns (D12) |