Understanding Consumption in Retirement: Recent Developments

This chapter summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Most importantly, there is substantial heterogeneity in spending changes at retirement across consumption categories. The declines in spending during retirement are limited to the categories of food and work related expenses. Even though food spending declines during retirement, actual food intake remains constant. Furthermore, the literature shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement. Much of this heterogeneity, however, can be explained by households involuntarily retiring. Overall, the evidence suggests that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.