Can unexpected retirement explain the retirement-consumption puzzle?Evidence for subjective retirement expectations

Can unexpected retirement explain the retirement-consumption puzzle?

Evidence for subjective retirement expectations

Stephens

Melvin

Stephens, Melvin

Author

Haider

Steven J.

Haider, Steven J.

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20032003monographic

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2003

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

Previous research finds a systematic fall in consumption at retirement, even when these retirements are expected, which implies households do not behave as predicted by the lifecycle/ permanent income hypothesis. However, the workers expected date of retirement is typically predicted using an instrument - age - that we show to be correlated with unexpected retirements and will therefore lead to biased estimates. In this paper, we use an alternative instrument for expected retirement: workers own subjective beliefs of their expected retirement dates. We find that subjective retirement expectations provide strong predictive power for subsequent retirements above and beyond the impact of age on retirement probabilities. We still find, however, that consumption falls for workers who retire when expected although the estimated impact is 50 percent smaller when using retirement expectations as an instrument instead of age.

Melvin Stephens Jr. and Steven J. Haider.

CRR WP2003-15

CRR WP

2003-15

http://crr.bc.edu/images/stories/Working_Papers/wp_2003-15.pdf

MChBEnglisheng

MChB

Englisheng

English

eng