The Retirement-Consumption Puzzle
Anticipated and Actual Declines in Spending at Retirement
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.
- Full Document (pdf format)
Use Adobe Acrobat Reader version 7.0 or higher for the best experience.
Document Details
- Copyright: RAND Corporation
- Availability: Web-Only
- Pages: 33
- Document Number: WR-242
- Year: 2005
- Series: Working Papers
The research described in this report was performed under the auspices of RAND Labor and Population and was supported by the Social Security Administration via a grant to the Michigan Retirement Research Center. Additional support for data development was provided by the National Institute on Aging.
This report is part of the RAND Corporation working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.
Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.
RAND® is a registered trademark. Copyright © 1994-2012 RAND Corporation.