Consumption growth, saving and retirement in the U.K.

This paper examines age profiles of consumption and income from 25 successive years of the U.K. Family Expenditure Survey, looking in particular at households as they retire. We break down income and expenditure data for different cohorts and assess how they change over the life-cycle and around the time of their retirement. We then compare periods of unemployment and retirement and separate expenditures into some broad categories. Using stochastic Euler conditions we assess the anticipated impact of retirement against that of unemployment. It emerges that although income typically falls by more at unemployment than retirement the reverse is true for expenditure. Since the Euler equation results point to each having similar anticipated effects on consumption, the only way in which the life-cycle hypothesis (LCH) could be reconciled with this would be with the arrival of new information at the time of retirement.