Inattentive Households and Consumption Declines During Retirement - - PowerPoint PPT Presentation

▶
inattentive households and consumption declines during
SMART_READER_LITE
LIVE PREVIEW

Inattentive Households and Consumption Declines During Retirement - - PowerPoint PPT Presentation

Dec 19, 2022 380 likes •631 views

Inattentive Households and Consumption Declines During Retirement Sheng Guo Florida International University Jonathan Skinner Dartmouth College and NBER Stephen P. Zeldes Columbia University and NBER The 19 th Annual SSA Research Consortium

slide-1
SLIDE 1

Inattentive Households and Consumption Declines During Retirement

Sheng Guo

Florida International University

Jonathan Skinner

Dartmouth College and NBER

Stephen P. Zeldes

Columbia University and NBER The 19th Annual SSA Research Consortium Meeting, August 1, 2019 Funding from the Center for Retirement Research, Boston College, gratefully acknowledged

slide-2
SLIDE 2

Preparing for Retirement

Do households save enough for retirement? One view

Skinner

National Retirement Risk Index (NRRI), based on the Center for Retirement Research (CRR) at Boston

  • College. Thinkadvisor.com

2

slide-3
SLIDE 3

Preparing for Retirement

Another view….

Skinner 3

slide-4
SLIDE 4

Preparing for Retirement

Health and Retirement Study (HRS); CAMS (Consumption and Activities Mail Survey) with RAND cleaned files, 2002-2015/16 Retirement: Self-reported (in CAMS) with timing determined by search of HRS waves (forward and back). Priority goes to CAMS retirement report. 1,214 Households, 6,567 household-years Estimate household fixed-effects models with time-varying size of households

Measuring pre- and post-retirement consumption

Guo, Skinner, Zeldes 4

slide-5
SLIDE 5

Preparing for Retirement

Declining consumption (adjusted for household size)

Skinner 5

10 10.4 10.8 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Log Consumption by Year Relative to Retirement

slide-6
SLIDE 6

Preparing for Retirement

Rational reasons why consumption might decline

  • 1. Shift into home production (cooking at home / shopping) rather than

eating out (Aguiar and Hurst, 2005; Stephens and Toohey, 2018)

  • 2. Bad health leads to both a decline in consumption and early retirement

(Hurd & Rohwedder, 2013)

  • 3. Time preference rates/optimally reduce consumption at retirement as

children move out (Scholz et al., 2007)

  • 4. Reduction in work-related costs (Aguila et al., 2007; Been et al, 2018)

Guo, Skinner, Zeldes 6

slide-7
SLIDE 7

Preparing for Retirement

Intuition: People don’t always pay attention to looming income changes (e.g., retirement). So long as the utility cost of inattention isn’t too high, they don’t adjust their consumption (e.g., Gabaix, 2015)

An alternative explanation: “Inattention”

Guo, Skinner, Zeldes 7

10 10.4 10.8 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Log Consumption by Year Relative to Retirement

slide-8
SLIDE 8

Preparing for Retirement

Split households into terciles based on saving “adequacy” defined as: {Post-retirement income + “amortized” (1/15th) wealth} divided by {Pre-retirement non-capital income}

To test these hypotheses…

Guo, Skinner, Zeldes 8

slide-9
SLIDE 9

Preparing for Retirement

Annuitized income by tercile of retirement adequacy

Guo, Skinner, Zeldes 9

10 10.4 10.8 11.2 Log Annuitized Income

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 1

10 10.4 10.8 11.2 Log Annuitized Income

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 2

10 10.4 10.8 11.2 Log Annuitized Income

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 3

slide-10
SLIDE 10

Preparing for Retirement

Consumption by tercile of retirement adequacy

Guo, Skinner, Zeldes 10

10 10.4 10.8 11.2 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 1

10 10.4 10.8 11.2 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 2

10 10.4 10.8 11.2 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 3

slide-11
SLIDE 11

Preparing for Retirement

Consumption by tercile of retirement adequacy

Guo, Skinner, Zeldes 11

10 10.4 10.8 11.2 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 3

10 10.4 10.8 11.2 Log Consumption

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 1

slide-12
SLIDE 12

Preparing for Retirement

Checklist of hypotheses

  • 1. Shift into home production (cooking at home / shopping) rather than

eating out (Aguiar and Hurst, 2005; Stephens and Toohey, 2018)

  • 2. Bad health leads to both a decline in consumption and early retirement

(Hurd & Rohwedder, 2013)

  • 3. Time preference rates/optimally reduce consumption at retirement as

children move out (Scholz et al., 2007)

  • 4. Reduction in work-related costs (Aguila et al., 2007; Been et al, 2018)
  • 5. Inattention: People don’t always pay attention to looming income

changes (e.g., retirement).

Guo, Skinner, Zeldes 12

slide-13
SLIDE 13

Preparing for Retirement

Log food at home by tercile of saving adequacy

Guo, Skinner, Zeldes 13

7.4 7.8 8.2 8.6 9 Log Spending Food at Home

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 1

7.4 7.8 8.2 8.6 9 Log Spending Food at Home

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 2

7.4 7.8 8.2 8.6 9 Log Spending Food at Home

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 3

slide-14
SLIDE 14

Preparing for Retirement

Hours cooking and shopping, by tercile

Guo, Skinner, Zeldes 14

5 7 9 11 13 15 Hours Home Cooking + Shopping

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 1

5 7 9 11 13 15 Hours Home Cooking + Shopping

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 2

5 7 9 11 13 15 Hours Home Cooking + Shopping

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Retirement Adequacy Group 3

slide-15
SLIDE 15

Preparing for Retirement

Self-reported health, by tercile

Guo, Skinner, Zeldes 15

slide-16
SLIDE 16

Preparing for Retirement

Mean % change for this question in CAMS: -26% Actual % change over 4 years: -22%

Anticipated consumption declines? (e.g., time preference)

Guo, Skinner, Zeldes 16

slide-17
SLIDE 17

Preparing for Retirement

Yet expected consumption doesn’t predict actual

Guo, Skinner, Zeldes

  • 3
  • 2
  • 1

1 2 Log Change in Consumption After Retirement

  • 1
  • .5

.5 1 pre-retirement expected consumpion growth rate

17

R2 = .01

slide-18
SLIDE 18

Preparing for Retirement

Checklist of hypotheses

  • 1. Shift into home production (cooking at home / shopping) rather than

eating out (Aguiar and Hurst, 2005; Stephens and Toohey, 2018)

  • 2. Bad health leads to both a decline in consumption and early retirement

(Hurd & Rohwedder, 2013)

  • 3. Time preference rates/optimally reduce consumption at retirement as

children move out (Scholz et al., 2007)

  • 4. Reduction in work-related costs (Aguila et al., 2007; Been et al, 2018)
  • 5. Inattention: People don’t always pay attention to looming income

changes; currently testing in a method of moments model (in progress)

Guo, Skinner, Zeldes 18

slide-19
SLIDE 19

Preparing for Retirement

Summing up

  • Little agreement on the question of whether people are saving

adequately for their retirement

  • This paper considers a longer horizon around retirement and

recognizes the heterogeneity of retirement adequacy in the population

  • A model of inattention nested in traditional models could reconcile
  • therwise puzzling empirical patterns
  • Ongoing: Test hypotheses formally in structural model
slide-20
SLIDE 20

Preparing for Retirement

Extra slides

Skinner 20

slide-21
SLIDE 21

Preparing for Retirement

Consumption minus health expenses declines – similar pattern

Skinner 21

10 10.4 10.8 Log Consumption Less Health Care Expenses

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Log Consumption Less Health Care Expenses

slide-22
SLIDE 22

Preparing for Retirement

Declining consumption before and after retirement

Skinner 22

10 10.4 10.8 Log Consumption Less Work Expenses

  • 6
  • 4
  • 2

2 4 6 8 10 Year Relative to Retirement

Log Consumption Less Work Expenses

The pattern remains if net of work expenses…

slide-23
SLIDE 23

Preparing for Retirement

Risk Aversion Prior to Retirement

Skinner 23

slide-24
SLIDE 24

Preparing for Retirement

Some statistics of tercile groups

Skinner 24