Consumption in Retirement: Heterogeneous Effects by Household Type and Gender
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Consumption in Retirement: Heterogeneous Effects by Household Type and Gender Paul Redmond 1 & Seamus McGuinness 2 Received: 14 January 2020 / Accepted: 6 October 2020/ # Springer Nature B.V. 2020
Abstract The standard life-cycle model suggests that individuals will smooth consumption over their lifetime in response to expected income changes, such as retirement. We investigate the heterogeneous impact of retirement on a broad range of consumption categories in one- and two-adult households in Ireland from 1987 to 2016. Total consumption declines by 13% for two-adult households where the other (nonretiring) adult is not in employment. There is no significant effect in two-adult households where the other adult is working. Spending for single retirees declines by considerably more, at approximately 30%. This is due to lower spending on meals outside the home, leisure and holidays. Our analysis reveals gender differences, with declines in leisure and holiday spending occurring among single male retirees only. This is potentially concerning as it may point towards social isolation in retirement. While all household types experience lower spending on meals outside the home, expenditure on food consumed at home is unaffected. Retired households appear to smooth overall food consumption by devoting a greater percentage of their income to home food consumption. Keywords Retirement . Household consumption . Leisure . Nondurable expenditure .
Social isolation JEL Classification D12 . D15 . E21
* Paul Redmond [email protected]
1
Economic and Social Research Institute, Dublin, Trinity College Dublin, Dublin 2, Ireland
2
Economic and Social Research Institute, Dublin, IZA, Bonn, Trinity College Dublin, Dublin 2, Ireland
P. Redmond, S. McGuiness
Introduction Individuals of working age know that retirement will occur at some point in the future. The time of retirement is predictable for most workers. For example, in Ireland, individuals usually retire around 65 years of age.1 The standard life-cycle model suggests that forward looking agents will smooth consumption over their lifetime in response to expected income changes. Despite these predictions, there is evidence to show that consumption declines at retirement, leading to a perceived “retirement consumption puzzle” (see, e.g., Haider and Stephens Jr. 2007; Fernández-Villaverde and Krueger 2007; Banks et al. 1998; Hamermesh 1984; Laitner and Silverman 2005).2 Recent work has shown that the drop in consumption at retirement is often attributable to a decline in work-related expenses such as meals outside the home and clothing (Battistin et al. 2009; Luengo-Prado and Sevilla 2012; Miniaci et al. 2010; Aguila et al. 2011). While food expenditure often declines, it has been shown that neither the quality nor quantity of food decreases, as retired individuals spend more time shopping and preparing food at home (Aguiar and Hurst 2005; Stancanelli and Van Soest 2012; Velarde and Herrmann 2014; Agarwal et al. 2015). In this regard, food consumption may be smoothed throu
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