Changes in Consumption at Retirement: The Role of Income and Wealth Inequality

Susann Rohwedder, RAND

Prior research has found a drop in consumption at retirement and interpreted the drop as a failure to save adequately due to a lack of forward-looking behavior by workers. If true this interpretation would further imply that welfare unexpectedly declines at retirement. This research will compare changes in consumption at retirement in panel with anticipated changes, and find whether anticipated drops are the same as actual drops. It will document whether the magnitude of the decline is associated with income and wealth which would suggest that income and wealth inequality are partly responsible for the decline on average. Besides providing evidence about the retirement-consumption puzzle and any associated change in self-assessed well-being at retirement, these findings will suggest whether policy should encourage more planning for retirement and more pre-retirement saving.