Does the Form of Retirement Wealth Matter for Spending? Evidence from HRS/CAMS
DOI:
https://doi.org/10.61190/76daas19Keywords:
retirement spending , decumulation, liquidity, annuitized wealth, household financeAbstract
This study examines whether holding retirement wealth as annuitized income streams or liquid account-based balances is associated with household consumption among older retirees. Using the RAND Health and Retirement Study Longitudinal survey merged with the RAND Consumption and Activities Survey, the analysis focuses on retired and partly retired respondents aged 65 and older with household consumption data and retirement resources. In weighted pooled regressions with respondent-clustered standard errors, both wealth forms are positively associated with consumption, but the association is significantly larger for liquid account wealth. Holding total measured resources constant, a higher annuitized share is associated with lower consumption. However, person fixed-effects models reduce both wealth associations to statistical insignificance, suggesting that the finding primarily reflects differences across households rather than changes within households over time. The findings offer measured support for a liquidity-and-accessibility view of retirement spending while cautioning that cross-sectional wealth-composition patterns should not be interpreted as causal. Implications for retirement-income and decumulation planning are discussed.
Downloads
References
Banerjee, S. (2018). Asset decumulation or asset preservation? What guides retirement spending? (EBRI Issue Brief No. 447). Employee Benefit Research Institute.
Blanchett, D., & Finke, M. S. (2025). Retirees spend lifetime income, not savings. Financial Planning Review, 8(3), e70010. https://doi.org/10.1002/cfp2.70010 DOI: https://doi.org/10.1002/cfp2.70010
Brown, J. R., Kling, J. R., Mullainathan, S., & Wrobel, M. V. (2008). Why don't people insure late-life consumption? A framing explanation for the under-annuitization puzzle. American Economic Review, 98(2), 304–309. https://doi.org/10.1257/aer.98.2.304 DOI: https://doi.org/10.1257/aer.98.2.304
Butrica, B. A., & Mermin, G. B. T. (2006). Annuitized wealth and consumption at older ages (CRR Working Paper No. 2006-26). Center for Retirement Research at Boston College.
Butrica, B. A., Johnson, R. W., & Mermin, G. B. T. (2009). Do health problems reduce consumption at older ages? (CRR Working Paper No. 2009-9). Center for Retirement Research at Boston College. DOI: https://doi.org/10.2139/ssrn.1371110
Davidoff, T., Brown, J. R., & Diamond, P. A. (2005). Annuities and individual welfare. American Economic Review, 95(5), 1573–1590. https://doi.org/10.1257/000282805775014281 DOI: https://doi.org/10.1257/000282805775014281
Deaton, A. (1991). Saving and liquidity constraints. Econometrica, 59(5), 1221–1248. https://doi.org/10.2307/2938366 DOI: https://doi.org/10.2307/2938366
De Nardi, M., French, E., & Jones, J. B. (2010). Why do the elderly save? The role of medical expenses. Journal of Political Economy, 118(1), 39–75. https://doi.org/10.1086/651674 DOI: https://doi.org/10.1086/651674
Hurd, M. D., & Rohwedder, S. (2008). The retirement consumption puzzle: Actual spending change in panel data (NBER Working Paper No. 13929). National Bureau of Economic Research. https://doi.org/10.3386/w13929 DOI: https://doi.org/10.3386/w13929
Hurd, M. D., & Rohwedder, S. (2013). Heterogeneity in spending change at retirement. The Journal of the Economics of Ageing, 1–2, 60–71. https://doi.org/10.1016/j.jeoa.2013.09.002 DOI: https://doi.org/10.1016/j.jeoa.2013.09.002
Levin, L. (1998). Are assets fungible? Testing the behavioral theory of life-cycle savings. Journal of Economic Behavior & Organization, 36(1), 59–83. https://doi.org/10.1016/S0167-2681(98)00070-5 DOI: https://doi.org/10.1016/S0167-2681(98)00070-5
Modigliani, F., & Brumberg, R. (1954). Utility analysis and the consumption function: An interpretation of cross-section data. In K. K. Kurihara (Ed.), Post-Keynesian economics (pp. 388–436). Rutgers University Press.
Poterba, J. M., Venti, S. F., & Wise, D. A. (2011). The composition and drawdown of wealth in retirement. Journal of Economic Perspectives, 25(4), 95–118. https://doi.org/10.1257/jep.25.4.95 DOI: https://doi.org/10.1257/jep.25.4.95
RAND Corporation. (2024). RAND HRS CAMS Data 2021 (V1) documentation. RAND Center for the Study of Aging.
RAND Corporation. (2025). RAND HRS Longitudinal File 2022 (V1) documentation. RAND Center for the Study of Aging.
Shefrin, H. M., & Thaler, R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, 26(4), 609–643. https://doi.org/10.1111/j.1465-7295.1988.tb01520.x DOI: https://doi.org/10.1111/j.1465-7295.1988.tb01520.x
Social Security Administration. (2024). Period life table, 2021. U.S. Social Security Administration, Office of the Chief Actuary. https://www.ssa.gov/oact/STATS/table4c6.html
Thaler, R. H. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199–214. https://doi.org/10.1287/mksc.4.3.199 DOI: https://doi.org/10.1287/mksc.4.3.199
Thaler, R. H. (1990). Anomalies: Saving, fungibility, and mental accounts. Journal of Economic Perspectives, 4(1), 193–205. https://doi.org/10.1257/jep.4.1.193 DOI: https://doi.org/10.1257/jep.4.1.193
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3), 183–206. https://doi.org/10.1002/(SICI)1099-0771(199909)12:3<183::AID-BDM318>3.0.CO;2-F DOI: https://doi.org/10.1002/(SICI)1099-0771(199909)12:3<183::AID-BDM318>3.0.CO;2-F
University of Michigan. (2025). Health and Retirement Study: Public survey data. Institute for Social Research.
Yaari, M. E. (1965). Uncertain lifetime, life insurance, and the theory of the consumer. The Review of Economic Studies, 32(2), 137–150. https://doi.org/10.2307/2296058 DOI: https://doi.org/10.2307/2296058
Zeldes, S. P. (1989). Consumption and liquidity constraints: An empirical investigation. Journal of Political Economy, 97(2), 305–346. https://doi.org/10.1086/261605 DOI: https://doi.org/10.1086/261605
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Christopher Reddick
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain the copyright and full publishing rights without restriction.
Author(s) grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows reusers to distribute, remix, adapt, and build upon the material in any medium or format, for noncommercial purposes only. Reusers must acknowledge the work's authorship and initial publication in this Journal.
Noncommercial means not primarily intended for or directed towards commercial advantage or monetary compensation.
In addition, FSR grants to the UGA Libraries a worldwide, non-exclusive license to all content published by the Journal, including metadata, that is necessary to publish, transmit, and index the Journal and to preserve its content over time.
