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Retirement Consumption and Pension Design

Author

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  • Landais, Camille
  • Kolsrud, Jonas
  • Reck, Daniel
  • Spinnewijn, Johannes

Abstract

This paper develops and implements a framework that leverages consumption data to evaluate the welfare effects of pension reforms. Several countries have reformed their pension profiles to incentivize later retirement. Using administrative data in Sweden, we find that such pension reforms entail substantial consumption smoothing costs. On average, individuals retiring later have higher consumption levels than those retiring earlier, implying that recent pension reforms redistributed from low- to high-consumption households. We show that the differences in retirement consumption are mostly driven by differential changes in consumption around retirement, and also that the marginal propensities to consume are the lowest for late retirees. Accounting for selection on health and life expectancy further increases the redistributive cost of recent reforms. The cost of incentivizing later retirement is, however, lowest between the early and normal retirement age, where we document a striking non-monotonicity in consumption levels. We find similar patterns in consumption data from other countries, including the nonmonotonicity, suggesting our findings are not unique to Sweden.

Suggested Citation

  • Landais, Camille & Kolsrud, Jonas & Reck, Daniel & Spinnewijn, Johannes, 2021. "Retirement Consumption and Pension Design," CEPR Discussion Papers 16420, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:16420
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    References listed on IDEAS

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    1. Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2009. "The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach," American Economic Review, American Economic Association, vol. 99(5), pages 2209-2226, December.
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    6. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2018. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," American Economic Review, American Economic Association, vol. 108(4-5), pages 985-1033, April.
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    Cited by:

    1. Zhao, Weimin & Chen, Na, 2024. "Does old-age security promote rural residents' consumption? A decomposition based on contribution and replacement rates," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 817-830.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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