The Retirement-consumption Puzzle: New Evidence from Personal Finances

Arna Olafsson, Michaela Pagel

Research output: Contribution to conferencePaperResearchpeer-review

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
Publication date2019
Number of pages51
Publication statusPublished - 2019
EventThe 79th Annual Meeting of American Finance Association. AFA 2019 - Hilton Atlanta, Atlanta, United States
Duration: 4 Jan 20196 Jan 2019
Conference number: 79
https://editorialexpress.com/conference/AFA2019/program/AFA2019.html

Conference

ConferenceThe 79th Annual Meeting of American Finance Association. AFA 2019
Number79
LocationHilton Atlanta
CountryUnited States
CityAtlanta
Period04/01/201906/01/2019
Internet address

Keywords

  • Retirement
  • Consumption
  • Savings
  • Consumer debt

Cite this

Olafsson, A., & Pagel, M. (2019). The Retirement-consumption Puzzle: New Evidence from Personal Finances. Paper presented at The 79th Annual Meeting of American Finance Association. AFA 2019, Atlanta, United States.
Olafsson, Arna ; Pagel, Michaela. / The Retirement-consumption Puzzle : New Evidence from Personal Finances. Paper presented at The 79th Annual Meeting of American Finance Association. AFA 2019, Atlanta, United States.51 p.
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Olafsson, A & Pagel, M 2019, 'The Retirement-consumption Puzzle: New Evidence from Personal Finances' Paper presented at, Atlanta, United States, 04/01/2019 - 06/01/2019, .

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

2019. Paper presented at The 79th Annual Meeting of American Finance Association. AFA 2019, Atlanta, United States.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - The Retirement-consumption Puzzle

T2 - New Evidence from Personal Finances

AU - Olafsson, Arna

AU - Pagel, Michaela

PY - 2019

Y1 - 2019

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AB - 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.

KW - Retirement

KW - Consumption

KW - Savings

KW - Consumer debt

KW - Retirement

KW - Consumption

KW - Savings

KW - Consumer debt

M3 - Paper

ER -

Olafsson A, Pagel M. The Retirement-consumption Puzzle: New Evidence from Personal Finances. 2019. Paper presented at The 79th Annual Meeting of American Finance Association. AFA 2019, Atlanta, United States.