Speaker: Susann Rohwedder (RAND Corporation)
Topic: Explanations for the Decline in Spending at Older Ages
Abstract: We use new data from the 2019 wave of the Consumption and Activities Mail Survey to help interpret the observed decline in spending as individuals age. At one extreme, forward looking individuals optimally chose the decline; at the other, myopic individuals overspent and were forced to reduce spending because they had run out of wealth. Which interpretation is correct has central implications for the measurement of economic preparation for retirement. We found that an important mechanism for spending decline at older ages may be that individuals’ enjoyment of various spending-related activities declines with worsening health, widowing and increasing age. Individuals’ responses to questions about changes in spending and the reasons for those changes provide strong support for this hypothesis.
If the productivity of spending on several items declines, it would follow that spending could be reduced with minimal impact on constraints to financial situation and on satisfaction in financial situation. Respondents’ assessments are consistent with this: the fraction feeling financially constrained is lower at advanced ages, while the fraction satisfied with their economic situation is higher at older ages. This finding holds also when using within-person changes.
Still, close to 20 percent of those over 80 report not being satisfied with their financial situation, pointing to some heterogeneity.
Susann Rohwedder is a senior economist at the RAND Corporation and associate director of the RAND Center for the Study of Aging. Her research focuses on the economics of aging in the areas of household consumption and saving behavior, retirement, long-term care, expectation formation, and subjective well-being.
Rohwedder has written on the impact of public pensions on household saving; the adequacy of retirement resources of U.S. households near retirement; the effect of retirement on cognitive ability; spending and saving patterns among the older population; the lifetime risk of nursing home entry and associated out-of-pocket expenditures; and various topics involving individuals’ expectations about future outcomes. Other papers deal with data quality and survey methods. Rohwedder has extensive experience in survey design and data collection: she is jointly responsible for the design of the HRS Consumption and Activities Mail Survey, led the design and collection of over 60 waves for the Financial Crisis Surveys fielded on the RAND American Life Panel and plays a leading role in the design and operations of the monthly data collections in the ongoing Singapore Life Panel.
Rohwedder is a research fellow of NETSPAR (Network for Studies on Pensions, Aging, and Retirement) in the Netherlands, serves on the Survey Committee of the German Socio-Economic Panel and is associate editor of the Journal of the Economics of Ageing. She holds a Ph.D. and M.A. in economics from University College London, and Master's degrees from the University of Warwick (UK) and the Sorbonne in Paris.