Project in detail

Consumption Behavior, Annuity Income and Mortality Risk of the Elderly

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Previous empirical studies have found that individuals do not draw down their assets after retirement which is at odds with the predictions of a simple life cycle model without uncertainty. Hurd (Econometrica 57(4):779–813, 1989; Mortality risk and consumption by couples, 1999) explains such saving behavior of retired singles and couples by adding lifetime uncertainty to the simple life cycle model. In this project we tested whether predictions about consumption during retirement of this extended life cycle model hold for a sample of older Americans. For this purpose we used data from the Health and Retirement Study supplemented with data from the Consumption and Activities Mail Survey. In line with theory we found that, on average, total consumption is greater than their annuity income after retirement and that this difference increases with the level of initial wealth. For older singles but not for couples our results suggest that, as predicted by the extended theoretical model of Hurd, the on average negative consumption growth decreases with higher mortality rates. This project is conducted in cooperation with Prof. Dr. Rob Alessie (University of Groningen, The Netherlands) and Adriaan Kalwij, Ph.D.(Utrecht University, The Netherlands). Results were published in De Economist.

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