Wednesday, March 9, 2011

Retirement, budgets, spending

Today's Conversation Blog post with David Brooks and Gail Collins raises some interesting points about retirement, pensions, and spending. The passage about the replacement rate --- a pension might replace 70% of income, for example --- caught my eye. Brooks jokes that the extra 30% you don't need was for gin and psychotherapy, which stress-addled middle-aged workers need to replace loss happiness.

A recent working paper by Michael Hurd and Susann Rohwedder shows only modest declines in spending associated with retirement, with somewhat larger decline among low-income households where health shocks may have caused retirement. This contrasts with evidence in the cross section or with limited spending data that had suggested larger declines in spending, more consistent with Brooks's gin and psychotherapy idea.

The blog post also discusses some fiscal sustainability issues with a clear eye.