Food Expenditure and Involuntary Retirement: Resolving the Retirement‐Consumption Puzzle

Abstract

International research has shown that household expenditure on nondurables significantly decreases at retirement ‐ a finding that is inconsistent with the standard life‐cycle model of consumption if retirement is anticipated. We analyze Australian panel data and find that the decline in grocery and food expenditure is explained by households forced to retire earlier than planned due to a health event or job‐loss, which represent unanticipated wealth shocks. For most households retirement is anticipated and there is no decline in basic expenditures. However, for an important minority, retirement is ‘involuntary’ and these households experience a marked decline across the basic expenditure categories.

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