Consumption in Retirement: Heterogeneous Effects by Household Type and Gender

Abstract

The standard life-cycle model suggests that individuals will smooth consumption over their lifetime in response to expected income changes, such as retirement. We investigate the heterogeneous impact of retirement on a broad range of consumption categories in one- and two-adult households in Ireland from 1987 to 2016. Total consumption declines by 13% for two-adult households where the other (non-retiring) adult is not in employment. There is no significant effect in two-adult households where the other adult is working. Spending for single retirees declines by considerably more, at approximately 30%. This is due to lower spending on meals outside the home, leisure and holidays. Our analysis reveals gender differences, with declines in leisure and holiday spending occurring among single male retirees only. This is potentially concerning as it may point towards social isolation in retirement. While all household types experience lower spending on meals outside the home, expenditure on food consumed at home is unaffected. Retired households appear to smooth overall food consumption by devoting a greater percentage of their income to home food consumption.