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The Retirement-Consumption Puzzle: a Marital Bargaining Approach

By Shelly Lundberg, Richard Startz and Steven Stillman


Evidence from several countries reveals a substantial drop in household consumption around the age of retirement that is difficult to explain with life-cycle models. Using food consumption data from more than 550 households from the Panel Study of Income Dynamics for the years 1979 – 1986 & 1989 – 1992, we find that married couple households decrease their expenditures on both food consumed at home and away from home by about 9 percent following the retirement of the male household head. No significant decrease in consumption is found for single households, either in a sample of males or a pooled sample of single males and females. These results are consistent with a model of marital bargaining in which wives prefer to save more than their husbands do to support an expected longer retirement period, and relative control over household decisions is affected by control over market income. The pattern of the consumption decline, which is increasing in the age gap between husband and wife, lends further support to this interpretation. (JEL: D1, D91, E21

Year: 2003
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