Consumption and Saving after Retirement

Bent Jesper Christensen, Malene Kallestrup-Lamb and John Kennan

No 29826, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper analyzes consumption decisions of retired workers, using Danish register data. A major puzzle, which motivates much of the analysis below, is that wealth actually increases for a large fraction of the people in our data. One would expect that wealth accumulated before retirement would be used to augment consumption in later life, with the implication that wealth should decline over time. The risk of large out-of-pocket medical expenditures is negligible in Denmark, so although explanations associated with such expenditures might explain similar patterns in U.S. data, these explanations are not plausible for Denmark (and therefore also questionable for the U.S.). Our analysis instead attempts to explain wealth paths using a model that emphasizes fluctuations in the marginal utility of consumption. The results show that a latent state variable extension of the standard life-cycle consumption model is quite successful in explaining the curious observed wealth patterns after retirement for singles.

JEL-codes: E21 J26 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-lma, nep-mac and nep-upt
Note: AG EFG LS
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