The Retirment Consumption Puzzle: Evidence From China Urban Household

With increased aging, more and more people will make retirement decisions. How the retirement decision-making of residents effects their consumption? The scholars from various countries pay more and more attention to this research. Many factors affect consumption, such as tastes, risk preference, heritage motive, which are hard to quantify. Therefore, many scholars depend on Life-cycle theory to analysis consumption. the key point of Life-cycle theory is household use savings and borrowing to smooth consumption in the whole life.This has led to more and more attention scholars from various countries. Many factors affect the consumer changes, such as cross-time preference, risk preference, heritage motivation, and these factors are essentially amount to be difficult. Therefore, many scholars, according to life cycle theory of consumption analysis. Residents the use of savings and borrowing to smooth consumption path throughout the life cycle is the key point of the life cycle theory. However, the British and American scholars (Banks, Blundell and Tanner (1998, UK); Bernheim, Skinner and Weinberg (2001, US)) have concluded that household consumption falls at the time of retirement, even when retirement is expected. And this has led researchers to call into question the standard rational expectations life-cycle model. Therefore, This fall in consumption at retirement is referred to as the "retirement-consumption puzzle".This article aims to test: is there "retirement-consumption puzzle" phenomenon in China. Different from Britain and other countries, China has maintained a very high household savings rate. Moreover, the savings rate has been rising (Modigliani and Cao,2004). Therefore, the high savings is likely to smooth household consumption in China to avoid "retirement-consumption puzzle" phenomenon. Meanwhile, China's retirement system and customs is different from the UK and other countries. In China, the statutory retirement age:60 years older for men,55 for women. These differences may affect household consumption at the time of retirement, different from other countries.This article use The Chinese Household Income Project 1995 and 2002 to verify the existence of the "retirement-consumption puzzle" phenomenon among urban residents in China. the results show that the "retirement-consumption puzzle" phenomenon can not simply attributed to the existence or not. It is clear that the retirement caused a negative impact on household consumption. Moreover, different families experience different the process of retirement. the change of household consumption is different. retirement is a process. In this process, the retirement caused a negative impact on household consumption.The household make appropriate consumption adjustments to answer the negative effects of retirement. when the process is finished, the household have finished adjustment. In this process, the family's total spending declines, but the food consumption remained stable. The food consumption begin decline when both husband and wife left the labor market. From the regression,the results show that the total household income affected the household consumption significantly. In the end, the research of the "retirement-consumption puzzle" should be carried out on the dividing income group in the future, which can identify the retirement effect for different income groups.