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The simple one-good model of life-cycle consumption requires “consumption
smoothing.” According to previous results based on partial spending and on synthetic
panels, British and U.S. households apparently reduce consumption at retirement. The
reduction cannot be explained by the simple one-good life-cycle model, so it has been
referred to as the retirement-consumption puzzle. An interpretation is that at retirement
individuals discover they have fewer economic resources than they had anticipated prior
to retirement, and as a consequence reduce consumption. This interpretation challenges
the life-cycle model where consumers are assumed to be forward looking. Using panel
data on anticipated consumption changes at retirement and on recollected consumption
changes following retirement, we find that the median recollected change in spending at
retirement is zero and that the recollections are broadly consistent with anticipations.
Based on a measure of total spending in true panel we find that the actual mean and
median changes are slightly positive. Therefore, we find no retirement-consumption
puzzle.
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