The Retirement-Consumption Puzzle: New Evidence from Personal Finances

Arna Olafsson and Michaela Pagel

No 24405, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses a detailed panel of individual spending, income, account balances, and credit limits from a personal finance management software provider to investigate how expenditures, liquid savings, and consumer debt change 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. We provide new evidence on the retirement-consumption puzzle and on whether individuals save adequately for retirement. We find that, upon retirement, individuals reduce their spending in both work-related and leisure categories. However, we feel that it is difficult to tell conclusively whether expenses are work related or not, even with the best data. We thus look at household finances and find that individuals delever upon retirement by reducing consumer debt and increasing liquid savings. We argue that these findings are difficult to rationalize via, for example, work-related expenses. A rational agent would save before retirement because of the expected fall in income, and dissave after retirement, rather than the exact opposite

JEL-codes: D12 D14 E21 J26 J32 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-age, nep-dem and nep-mac
Note: AG AP LS
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Citations: View citations in EconPapers (26)

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