Changes in Consumption at Retirement

Abstract

Previous empirical literature has found a sharp decline in consumption during the first years of retirement implying that individuals do not save enough for their retirement. This phenomenon has been called the retirement consumption puzzle. In contrast to some of the previous studies, the authors find no evidence of the retirement consumption puzzle during the first years of retirement. Consumption is defined as nondurable expenditure, a more comprehensive measure than only food used in many previous studies. Food expenditure at retirement decreases. The latter could be explained by a reallocation of the budget shares after retirement to adjust to a new stage in the life cycle. These results suggest that food expenditure is not an accurate measure to test the Life Cycle Model.