ESRI Discussion Paper Series No.308
Is there a retirement consumption puzzle in Japan? Evidence based on panel data on households in the agricultural sector

Masahiro Hori
Senior Research Fellow, Economic and Social Research Institute
Keiko Murata
Graduate School of Social Sciences, Tokyo Metropolitan University and Visiting Research Fellow at the Economic and Social Research Institute (ESRI), Japanese Government

Abstract

Taking advantage of annual panel data on farm households collected by the Statistical Survey on Farm Management and Economy, this paper investigates whether a retirement consumption puzzle can be observed in Japan and, given that this is the case, what the reasons are. Our long-run panel data allow us to examine the behavior of households whose head actually retired during the observation period. Our analysis shows that households’ expenditure does decline after the retirement of the household head. What is more, changes in family size or other demographic factors appear to only marginally account for the expenditure decline upon retirement. Changes in life-style/preferences after retirement also do not appear to fully explain the expenditure decline, since the decline in expenditure is strongly correlated with the magnitude of the decline in income. Further, we find that the expenditure decline is larger for households with smaller net financial assets, which implies that part of the income-expenditure correlation around retirement is probably due to unanticipated negative income shocks. However, our analysis also implies that the consumption decline at retirement in Japan cannot be explained completely without the presence of myopic households or households that lacked discipline, which contradicts the assumptions of the LC/PIH.


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  2. page1
    Abstract
  3. page2
    1. Introduction
  4. page4
    2. Data
  5. page6
    3. Baseline specification and consumption changes at retirement
  6. page9
    4. What explains the puzzle?
    1. page9
      4.1 Effects of changes in household demographics
    2. page10
      4.2 Changes in lifestyle/preferences?
    3. page11
      4.3 Insufficient wealth accumulation?
    4. page11
      4.4 Disentangling the determinants of the decline in consumption
    5. page13
      4.5 Was the retirement a “surprise”?
  7. page14
    5. Conclusion
  8. page16
    Reference
  9. page18
    Figure 1. Changing pattern of income, consumption, and working hours ofhouseholds whose head retired at some point during our observation
  10. page19
    Table 1. Sample statistics (Based on data from 1995 to 2003)
  11. page20
    Table 1. Sample statistics (continued)
  12. page21
    Table 2. Do households' income and consumption decline at retirement in Japan?
  13. page22
    Table 3. How was the consumption decline correlated with the income decline at retirement?
  14. page22
    Table 4. How did the impact of retirement on income and consumption differ between householdswith high savings and households with low savings?
  15. page23
    Table 5. How did the impact of retirement on consumption differ among households? With low/high savings, a large/small income drop, and with/without a lump-sum retirement allowance
    1. page23
      5-1. Only households whose head retired at some point during the observation period
    2. page23
      5-2. Including control households
  16. page24
    Table 6. How did the impact of retirement on consumption differ among households? With low savings, a large/small income drop, expected/unexpected retirement
    1. page24
      6-1. Only households whose head retired at some point during the observation period
    2. page24
      6-2. Including control households
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    Appendix A. Estimates for the growth rates of income and consumption
    1. page25
      Table A1. Do households' income and consumption decline at retirement in Japan?
    2. page26
      Table A2. How was the consumption decline correlated with the income decline at retirement?
    3. page26
      Table A3. How did the impact of retirement on income and consumption differ between householdswith high savings and households with low savings?
    4. page27
      Table A4. How did the impact of retirement on consumption differ among households? With low/high savings, a large/small income drop, and with/without a lump-sum retirement allowance
      1. page27
        A4-1. Only households whose head retired at some point during the observation period
      2. page27
        A4-2. Including control households
    5. page28
      Table A5. How did the impact of retirement on consumption differ among households? With low savings, a large/small income drop, expected/unexpected retirement
      1. page28
        A5-1. Only households whose head retired at some point during the observation period
      2. page28
        A5-2. Including control households
  18. page29
    Appendix B. Estimates for the food expenditures
    1. page29
      Table B1. Do households' food expenditures decline at retirement in Japan?
    2. page29
      Table B2. Are households' food expenditures correlated with the income decline at retirement?
    3. page29
      Table B3. How did the impact of retirement on income and food expenditures differ betweenhouseholds with high savings and households with low savings?
    4. page30
      Table B4. How did the impact of retirement on food expenditures differ among households? With low/high savings, a large/small income drop, and with/without a lump-sum retirement allowance
    5. page30
      B4-1. Only households whose head retired at some point during the observation period
    6. page30
      B4-2. Including control households
    7. page31
      Table B5. How did the impact of retirement on food expenditures differ among households? With low savings, a large/small income drop, expected/unexpected retirement
    8. page31
      B5-1. Only households whose head retired at some point during the observation period
    9. page31
      B5-2. Including control households
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