TY  - JOUR
AU  - Hurst,Erik
TI  - The Retirement of a Consumption Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13789
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13789
L1  - http://www.nber.org/papers/w13789.pdf
N1  - Author contact info:
Erik Hurst
Booth School of Business
University of Chicago
Harper Center
Chicago, IL  60637
Tel: 773/834-4073
Fax: 773/702-0458
E-Mail: erik.hurst@chicagobooth.edu
AB  - This paper summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Collectively, the recent literature has shown that there is no puzzle with respect to the spending patterns of most households as they transition into retirement. In particular, the literature has shown that there is substantial heterogeneity in spending changes at retirement across consumption categories.  The declines in spending during retirement for the average household are limited to the categories of food and work related expenses.  Spending in nearly all other categories of non-durable expenditure remains constant or increases.  Moreover, even though food spending declines during retirement, actual food intake remains constant.  The literature also shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement.  Much of this heterogeneity, however, can be explained by households involuntarily retiring due to deteriorating health.  Overall, the literature shows that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.
ER  -