Grasshoppers, Ants, and Pre-Retirement Wealth: A Test of Permanent Income

Erik G. Hurst

48 citations0/0 files storedNational Bureau of Economic Research

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Financial Literacy, Pension, Retirement Analysis Income, Poverty, and Inequality Retirement, Disability, and Employment

Abstract

This paper shows that households who enter retirement with low wealth consistently followed nonpermanent income consumption rules during their working years.Using the Panel Study of Income Dynamics (PSID), household wealth in 1989 is predicted for a sample of 50-65 year olds using both current and past income, occupation, demographic, employment, and health characteristics.Using the residuals from this first stage regression, the sample of pre-retired households is subsetted into households who save 'lower' than predicted and all other households.The panel component of the PSID is then used to analyze the consumption behavior of these households early in their lifecycle.It is shown that these low pre-retirement wealth households had consumption growth that responded to predictable changes in income during their early working years.No such behavior was found among the other pre-retired households.Moreover, the low wealth residual households responded both to predictable income increases as well as predictable income declines, a result that is inconsistent with a liquidity constraints explanation.After ruling out other theories of consumption to explain these facts, it is concluded that households who entered retirement with lower than predicted wealth consistently followed near sighted consumption plans during their working lives.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 48 citations exist upstream.

References

1997Golden Eggs and Hyperbolic Discounting 1978Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence 1957Theory of the Consumption Function 2013Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data 1989Consumption and Liquidity Constraints: An Empirical Investigation 2002Consumption Over the Life Cycle 1989Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence 1997Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis

Cited by

2006Reinventing the Welfare State 2015Government Policy with Time Inconsistent Voters 2003Precautionary Savings and the Wealth Distribution with Illiquid Durables 2008Planning and Financial Literacy: How Do Women Fare?2015The retirement consumption puzzle revisited: Evidence from the mandatory retirement policy in China 2010Behavioral foundations for the Keynesian consumption function

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.