Understanding Consumption in Retirement: Recent Developments

Erik Hurst

in Recalibrating Retirement Spending and Saving

Published in print September 2008 | ISBN: 9780199549108
Published online January 2009 | e-ISBN: 9780191720734 | DOI:
Understanding Consumption in Retirement: Recent Developments

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This chapter summarizes five facts from the recent literature on consumption behavior during retirement. Most importantly, it shows that there is substantial heterogeneity in spending changes at retirement across consumption categories. Observed declines in spending during retirement are limited to food and work-related expenses. Even though food spending declines during retirement, actual food intake remains constant. Furthermore, the literature shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement. Much of this heterogeneity, however, can be explained by households involuntarily retiring. Overall, the evidence suggests that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.

Keywords: post-retirement consumption; household expenses; cost of living; entertainment; charitable giving; spending; adequacy

Chapter.  7055 words. 

Subjects: Pensions

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