Overview

We study heterogeneity in spending patterns around the time of retirement. Using rich consumption data from the Panel Study of Income Dynamics, and exploiting within-household variation in spending, we systematically classify households into three groups based on whether they experience a stable, increasing, or decreasing pattern of non-durable spending on retirement. We find that households with a stable transition are substantially better off than the other two groups and that households that cut spending at retirement have similar socioeconomic status, but higher wealth, with respect to households that increase spending. Using a theoretical framework, we characterize two classes of mechanisms capable of driving these observed patterns: non-separable preferences between consumption and leisure and behavioral biases.