%0 Journal Article %J Review of Economics and Statistics %D 2007 %T Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations %A Steven Haider %A Melvin Stephens Jr. %K Consumption and Savings %K End of life decisions %K Expectations %X Abstract Previous research finds a systematic decrease in consumption at retirement, a finding that is inconsistent with the life cycle/permanent income hypothesis if retirement is an expected event. In this paper, we use workers subjective beliefs about their retirement dates as an instrument for retirement. After demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions, we still find a consumption decline at retirement for workers who retire when expected. However, our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies. %B Review of Economics and Statistics %I 89 %V 89 %P 247-264 %G eng %N 2 %L newpubs20071203_retire_restat.pdf %4 Subjective Expectations/Economic Behavior/Decision Making/Consumption %$ 18330 %R https://doi.org/10.1162/rest.89.2.247 %0 Report %D 2006 %T How Accurate are Expected Retirement Savings? %A Steven Haider %A Melvin Stephens Jr. %K Consumption and Savings %K Expectations %X This paper examines the ability of workers nearing retirement to report their expected retirement savings, where retirement savings refers to funds held in savings, checking, and investment-type accounts. Responding to such a question is likely to be difficult, even for those who are near retirement, because it requires respondents to assess when they will retire, their likely income stream between the survey date and retirement, and what portfolio choices will be made at retirement. Based on two nationally representative surveys collected two decades apart, we find that most individuals provide some response to the question, particularly when they are allowed to provide a range. Moreover, the responses that are given have substantial predictive power for actual retirement savings, even when compared to the savings in the initial wave. Despite this predictive power, there is evidence that responses do not satisfy the more stringent requirements of the rational expectations hypothesis. %I The University of Michigan, Michigan Retirement Research Center %G eng %U http://www.mrrc.isr.umich.edu/publications/papers %L newpubs20070125_MRRCwp128 %4 Retirement Saving/Subjective Expectations %$ 17170 %0 Journal Article %J The Review of Economics and Statistics %D 2004 %T Job Loss Expectations, Realizations, and Household Consumption Behavior %A Melvin Stephens Jr. %K Adult children %K Consumption and Savings %K Employment and Labor Force %K Expectations %X Although the theoretical importance of expectations in decision-making is well-known to economists, only a few empirical papers investigate the impact of individual subjective expectations on economic outcomes. This paper examines the link between expectations of future job losses and the subsequent impact that these expectations have on household consumption behavior. The first part of the paper documents the empirical relationship between job loss expectations and subsequent job losses. Subjective job loss expectations have significant predictive power in explaining future job losses even when standard demographic information known to be associated with the prevalence of job displacement is included in the analysis. Furthermore, higher subjective job loss probabilities are correlated with an increased expectation of future earnings declines. Overall, these results indicate that the subjective job loss expectations variable is a meaningful predictor of subsequent displacement. Since a job displacement results in large and persistent earnings losses, job loss expectations should have an important impact on household consumption smoothing following a job loss. The second part of the paper finds that although a job loss significantly reduces household consumption, there is little evidence that the degree to which households anticipate job losses reduces the impact of displacement on consumption. Alternative models of interpreting responses to expectations questions and of household consumption behavior that may explain these results are discussed. %B The Review of Economics and Statistics %I 86 %V 86 %P 253-69 %G eng %N 1 %L newpubs20071002_NBERw9508 %4 Subjective Expectations/Job Loss/household behavior/Consumption %$ 18040 %R 10.2307/3211671 %0 Report %D 2003 %T Can Unexpected Retirement Explain the Retirement-Consumption Puzzle? Evidence from Subjective Retirement Expectations %A Melvin Stephens Jr. %A Steven Haider %K Consumption and Savings %K Expectations %K Retirement Planning and Satisfaction %X Previous research finds a systematic fall in consumption at retirement, even when these retirements are expected, which implies households do not behave as predicted by the lifecycle/ permanent income hypothesis. However, the worker s expected date of retirement is typically predicted using an instrument - age - that we show to be correlated with unexpected retirements and will therefore lead to biased estimates. In this paper, we use an alternative instrument for expected retirement: workers own subjective beliefs of their expected retirement dates. We find that subjective retirement expectations provide strong predictive power for subsequent retirements above and beyond the impact of age on retirement probabilities. We still find, however, that consumption falls for workers who retire when expected although the estimated impact is 50 percent smaller when using retirement expectations as an instrument instead of age. %B Center for Retirement Research at Boston College Working Papers %I Center for Retirement Research at Boston College %C Boston %G eng %U https://crr.bc.edu/working-papers/can-unexpected-retirement-explain-the-retirement-consumption-puzzle-evidence-for-subjective-retirement-expectations/ %L wp_2003/Stephens-Haider_CCRwp2003-15.pdf %4 Subjective expectations/Retirement/Consumption %$ 11852 %0 Thesis %D 1998 %T Two Essays on the Labor Market %A Melvin Stephens Jr. %K Employment and Labor Force %K Income %K Pensions %K Women and Minorities %X This dissertation contains essays which examine two aspects of the labor market that have undergone rapid changes in recent years. With dramatic increases in the fraction of workers having defined contribution pensions as their primary source of pension coverage, it is important to understand the role of these types of pensions on worker incentives and compensation. At the same time, the composition of displaced workers has seen many changes. In understanding how families cope with a job loss, one must examine the long-run impact of displacement. One chapter examines incentive differentials between defined benefit (DB) and defined contribution (DC) pensions and their impact on workers' compensation. Agency theories of DB pensions posit that deferred compensation can be used as a shirking reduction device. By withholding a portion of the worker's compensation, the firm will increase worker productivity, which in turn results in higher career compensation for pension covered workers. While DB pensions implicitly require workers to forgo current compensation, DC pensions do not impose these constraints on workers due to the portability of these plans. Since characteristics of workers with pensions are similar across different types of pension plans, DC covered workers offer a better comparison group than workers without pensions for testing these theories. Using both self-reported and administrative data from the Health and Retirement Study, this essay is unable to find support for the implication that workers with defined benefit pensions receive more career compensation. The other chapter examines the effect of a husband's job loss on the labor supply of his wife, an effect known as the 'added worker' effect. Unlike past studies which only focus on the effect of the husband's current unemployment status, this essay analyzes the wife's labor supply response in the periods before and after the husband's displacement in order to examine the long run adjustments to an earnings shock. Theoretical predictions for the timing and magnitude of the added worker effect are derived from a family life-cycle labor supply model and alternative predictions are obtained by including liquidity constraints and uncertainty in the analysis. Using the Panel Study of Income Dynamics, small pre-displacement effects are found along with larger effects which persist for many years after the initial displacement. The time path of the wives' responses differs by the type of displacement, possibly due to differences in the information wives acquire prior to the displacement. %I University of Michigan %8 1998 %G eng %4 Women's Studies (0453) %$ 5026 %+ ISBN 0-599-08469-3 %! Two Essays on the Labor Market