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Heterogeneity in Household Spending and Well-being around Retirement

We study heterogeneity in spending patterns around the time of retirement. Using rich consumption data from the Panel Study of Income Dynamics, and exploiting within-household spending variation, we systematically classify households into groups characterized by differences in consumption transitions at retirement. We decompose the overall spending changes into the contribution made by different subcomponents of consumption. We find that the households that increase their spending shift budget away from food and toward transportation, recreation, and trips. In contrast, those households for which spending falls reduce the budget share spent on transportation and food away from home, while increasing the share allocated to food at home and housing expenditures. Using a life-cycle model, we characterize the mechanisms capable of driving these observed patterns. Citation Moran, Patrick, Martin O'Connell, Cormac O’Dea, and Francesca Parodi. 2021. “Heterogeneity in Household Spending and Well-being Around Retirement.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2021-427. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp427.pdf Authors’ acknowledgements We are grateful to Richard Gong and Aneesha Parvathaneni for excellent research assistance and to Lucas Finamor for helpful discussions.