The Retirement-Consumption Puzzle: New Evidence on Individual Spending and Financial Structure
Abstract
In this paper, we use an accurate panel of individual spending, income, and financial account balances to learn more about expenditure and household financial structure changes around retirement. The longitudinal nature of our data allows us to estimate individual fixed-effects regressions and thereby control for all selection on time-invariant (un)observables. Upon retirement, individuals spend less on ready-made food, fuel, and clothes and more in pharmacies, which is consistent with reductions in work-related expenses. However, individuals also spend less on other consumption categories, such as sports and activities and fine dining. Furthermore, we are in a unique position to document the effect of retirement on credit-card, checking, and savings account balances: we find that individuals deliver by reducing consumer debt and increasing liquid savings. These findings cannot be rationalized via work-related expenses. Any rational agent would save before retirement, the expected fall in income, and dissave after retirement rather than the exact opposite.
View research
Citation
Olafsson, Arna and Michaela Pagel. "The Retirement-Consumption Puzzle: New Evidence on Individual Spending and Financial Structure." Columbia Business School, November 2017.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.