NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations

Steven Haider, Melvin Stephens Jr.

NBER Working Paper No. 10257
Issued in February 2004
NBER Program(s):   EFG   AG   LS

Previous research finds a systematic decrease in consumption at retirement, a finding that is inconsistent with the Life-Cycle/Permanent Income Hypothesis if retirement is an expected event. In this paper, we use workers' subjective beliefs about their retirement dates as an instrument for retirement. After demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions, we still find a retirement consumption decline for workers who retire when expected. However, our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies. Finally, we examine a number of hypotheses that have been put forward to explain the retirement consumption decline. We find little empirical support for these explanations in our data.

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Document Object Identifier (DOI): 10.3386/w10257

Published: Steven J Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, 03. citation courtesy of

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