Heterogeneity in spending change at retirement.

TitleHeterogeneity in spending change at retirement.
Publication TypeJournal Article
Year of Publication2013
AuthorsHurd, MD, Rohwedder, S
JournalJournal of the Economics of Ageing
Date Published2013 Nov
ISSN Number2212-828X
KeywordsOlder Adults, Retirement Planning and Satisfaction

The simple one-good model of life-cycle consumption requires that consumption be continuous over retirement; yet prior research based on partial measures of consumption or on synthetic panels indicates that spending drops at retirement, a result that has been called the retirement-consumption puzzle. Using panel data on total spending, nondurable spending and food spending, we find that spending declines at small rates at retirement, rates that could be explained by mechanisms such as the cessation of work-related expenses, unexpected retirement due to a health shock or by the substitution of time for spending. We find substantial heterogeneity in spending change at retirement: in the upper half of the wealth distribution spending increased. In the low-wealth population where spending did decline at higher rates, the main explanation for the decline appears to be early retirement due to poor health, possibly augmented by a short planning horizon by a minority of the population.

Alternate JournalJ Econ Ageing
Citation Key8953
PubMed ID24524026
PubMed Central IDPMC3919678
Grant ListP01 AG008291 / AG / NIA NIH HHS / United States
P30 AG012815 / AG / NIA NIH HHS / United States
U01 AG009740 / AG / NIA NIH HHS / United States