The Retirement-Consumption Puzzle

New Evidence from Personal Finances

Arna Olafsson, Michaela Pagel

Research output: Working paperResearch

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.
Original languageEnglish
Place of PublicationCambridge, MA
PublisherNational Bureau of Economic Research (NBER)
Number of pages51
Publication statusPublished - Mar 2018
SeriesNational Bureau of Economic Research. Working Paper Series
Number24405
ISSN0898-2937

Cite this

Olafsson, A., & Pagel, M. (2018). The Retirement-Consumption Puzzle: New Evidence from Personal Finances. Cambridge, MA: National Bureau of Economic Research (NBER). National Bureau of Economic Research. Working Paper Series, No. 24405
Olafsson, Arna ; Pagel, Michaela. / The Retirement-Consumption Puzzle : New Evidence from Personal Finances. Cambridge, MA : National Bureau of Economic Research (NBER), 2018. (National Bureau of Economic Research. Working Paper Series; No. 24405).
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Olafsson, A & Pagel, M 2018 'The Retirement-Consumption Puzzle: New Evidence from Personal Finances' National Bureau of Economic Research (NBER), Cambridge, MA.

The Retirement-Consumption Puzzle : New Evidence from Personal Finances. / Olafsson, Arna ; Pagel, Michaela.

Cambridge, MA : National Bureau of Economic Research (NBER), 2018.

Research output: Working paperResearch

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Olafsson A, Pagel M. The Retirement-Consumption Puzzle: New Evidence from Personal Finances. Cambridge, MA: National Bureau of Economic Research (NBER). 2018 Mar.