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Leisure and Housing Consumption after Retirement: New Evidence on the Life-Cycle Hypothesis

SOEPpapers 849, 35 S.

Sven Schreiber, Miriam Beblo


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We revisit the alleged retirement consumption puzzle. According to the life-cycle theory, foreseeable income reductions such as those around retirement should not affect consumption. However, we first recall that given higher leisure endowments after retirement, the theory does predict a fall of total market consumption expenditures. In order not to mistake this predicted drop for a puzzle we focus on housing consumption which can be plausibly regarded as complementary to leisure, and we control for the leisure change in our empirical specifications, using micro data for Germany (SOEP), where housing expenditures are observable as rents for the majority (60%), as well as dwelling relocations. We still find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with the life-cycle theory. For retirees we also find significant effects of the income reduction at retirement on housing. However, the effects are small in quantitative terms, given the lock-in nature of past housing decisions.

JEL-Classification: D91;E21
Keywords: consumption smoothing, retirement-consumption puzzle, SOEP
Frei zugängliche Version: (econstor)