Households’ joint consumption spending and home production responses to retirement in the US

Abstract

We analyze the effect of retirement on households’ joint consumption spending and home production decisions using a micro panel with detailed spending and time use categories of US households. For causal identification, we use panel data regressions. Our results suggest that the spending drop at retirement is partially compensated by increases in home production of the retiring household member. Home production can particularly make up for losses in spending categories that are well-substitutable by home production, although only about 12% of total pre-retirement consumption spending, but there is no evidence that households fully replace consumption spending at retirement. In a Life-Cycle Model, we find no empirical evidence for full consumption smoothing at retirement.