Consumption Behavior, Annuity Income and Mortality Risk of Retirees

Consumption Behavior, Annuity Income and Mortality Risk of Retirees Previous empirical studies have found that individuals do not draw down their assets after retirement which is at odds with the predictions of a simple life cycle model without uncertainty. Hurd (Econometrica 57(4):779–813, 1989; Mortality risk and consumption by couples, 1999) explains such saving behavior of retired singles and couples by adding lifetime uncertainty to the simple life cycle model. We tested whether predictions about consumption during retirement of this extended life cycle model hold for a sample of older Americans. We used data from the Health and Retirement Study supplemented with data from the Consumption and Activities Mail Survey. In line with theory we found that, on average, total consumption is greater than their annuity income after retirement and that this difference increases with the level of initial wealth. For older singles but not for couples our results suggest that, as predicted by the extended theoretical model of Hurd, the on average negative consumption growth decreases with higher mortality rates. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png De Economist Springer Journals

Consumption Behavior, Annuity Income and Mortality Risk of Retirees

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Publisher
Springer US
Copyright
Copyright © 2017 by The Author(s)
Subject
Economics; Economics, general; Economic Theory/Quantitative Economics/Mathematical Methods; Economic Policy; Microeconomics; Public Finance
ISSN
0013-063X
eISSN
1572-9982
D.O.I.
10.1007/s10645-017-9301-z
Publisher site
See Article on Publisher Site

Abstract

Previous empirical studies have found that individuals do not draw down their assets after retirement which is at odds with the predictions of a simple life cycle model without uncertainty. Hurd (Econometrica 57(4):779–813, 1989; Mortality risk and consumption by couples, 1999) explains such saving behavior of retired singles and couples by adding lifetime uncertainty to the simple life cycle model. We tested whether predictions about consumption during retirement of this extended life cycle model hold for a sample of older Americans. We used data from the Health and Retirement Study supplemented with data from the Consumption and Activities Mail Survey. In line with theory we found that, on average, total consumption is greater than their annuity income after retirement and that this difference increases with the level of initial wealth. For older singles but not for couples our results suggest that, as predicted by the extended theoretical model of Hurd, the on average negative consumption growth decreases with higher mortality rates.

Journal

De EconomistSpringer Journals

Published: Jun 15, 2017

References

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