Consumption and Saving after Retirement

Bent Jesper Christensen; Malene Kallestrup-Lamb; John Kennan

doi:10.3386/w29826

Consumption and Saving after Retirement

Bent Jesper Christensen, Malene Kallestrup-Lamb, John Kennan

Institut for Økonomi

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning

Abstract

The paper analyzes consumption decisions of retired workers, using Danish register data. A major puzzle, which motivates much of the analysis below, is that wealth actually increases for a large fraction of the people in our data. One would expect that wealth accumulated before retirement would be used to augment consumption in later life, with the implication that wealth should decline over time. The risk of large out-of-pocket medical expenditures is negligible in Denmark, so although explanations associated with such expenditures might explain similar patterns in U.S. data, these explanations are not plausible for Denmark (and therefore also questionable for the U.S.). Our analysis instead attempts to explain wealth paths using a model that emphasizes fluctuations in the marginal utility of consumption. The results show that a latent state variable extension of the standard life-cycle consumption model is quite successful in explaining the curious observed wealth patterns after retirement for singles.

Originalsprog	Engelsk
Tidsskrift	National Bureau of Economic Research. Working Paper Series
Nummer	29826
Antal sider	31
ISSN	0898-2937
DOI	https://doi.org/10.3386/w29826
Status	Udgivet - 2022

Adgang til dokumentet

10.3386/w29826

https://www.nber.org/system/files/working_papers/w29826/w29826.pdf

Citationsformater

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AB - The paper analyzes consumption decisions of retired workers, using Danish register data. A major puzzle, which motivates much of the analysis below, is that wealth actually increases for a large fraction of the people in our data. One would expect that wealth accumulated before retirement would be used to augment consumption in later life, with the implication that wealth should decline over time. The risk of large out-of-pocket medical expenditures is negligible in Denmark, so although explanations associated with such expenditures might explain similar patterns in U.S. data, these explanations are not plausible for Denmark (and therefore also questionable for the U.S.). Our analysis instead attempts to explain wealth paths using a model that emphasizes fluctuations in the marginal utility of consumption. The results show that a latent state variable extension of the standard life-cycle consumption model is quite successful in explaining the curious observed wealth patterns after retirement for singles.

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