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The simple one-good model of life-cycle consumption requires “consumption smoothing.”
However, British and U.S. households apparently reduce consumption at retirement and the
reduction cannot be explained by the life-cycle model. An interpretation is that retirees are
surprised by the inadequacy of resources. This interpretation challenges the life-cycle model
where consumers are forward looking. However, data on anticipated consumption changes
at retirement and on realized consumption changes following retirement show that the
reductions are fully anticipated. Apparently the decline is due to the cessation of workrelated
expenses and the substitution of home production for market-purchased goods and
services.
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