The Retirement-Consumption Puzzle in the UK

Applying Fuzzy Regression Discontinuity design on household survey data – Family Expenditure Survey (1968-2009) – in the UK, this study finds that before 1981 consumption substantially fell at the retirement age. This fall is less severe after 1980. However, throughout the data period, consumption fall at the retirement age is fully explained by the expected fall in income, which contradicts the life cycle model, where consumption is independent of income. However, previous studies identified that consumption tracks income partially. This study also sheds further light on consumption fall in some different groups such as retired from government jobs, retired from private jobs, male headed households, female headed households and income quartiles. Again, in almost all cases, consumption fall is fully explained by observed fall in income.