(Un)Expected Retirement and the Consumption Puzzle

Margherita Borella, Flavia Coda Moscarola and Mariacristina Rossi

No 126, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: In this work we revisit the retirement consumption puzzle using Italian panel data. As emphasized in the literature, the observed consumption drop might be due to unexpected wealth shocks at retirement, which modify optimal consumption plans. Using an Euler equation approach, we test the impact of unexpected retirement on the consumption patterns of individuals around the age of retirement by using the panel component of the Survey of Household Income and Wealth (SHIW). This data set contains information on the expected age of retirement, which can be used to distinguish between expected and unexpected retirement. We furthermore investigate the heterogeneous behaviour of individuals with different levels of education and wealth. We find evidence of a consumption drop at retirement, especially for low-educated people and individuals with low wealth. The consumption drop at retirement seems to be rationally planned by individuals, rather than a response to unexpected retirement.

Pages: 14 pages
Date: 2011-12
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: (Un)expected retirement and the consumption puzzle (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:crp:wpaper:126

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