New paper: “The Retirement-Consumption Puzzle: New Evidence from Personal Finances”

The Retirement-Consumption Puzzle: New Evidence from Personal Finances
by Arna Olafsson, Michaela Pagel  -  #24405 (AG AP LS)

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

http://papers.nber.org/papers/w24405?utm_campaign=ntw&utm_medium=email&utm_source=ntw