Retirement and household consumption: evidence from China

Using the 2022 wave of the China Family Panel Studies (CFPS) and a fuzzy regression-discontinuity (RDD) design at the statutory retirement age, this article estimates the local causal effect of retirement on household consumption and portfolio allocation. We find that retirement triggers a significant reallocation of household budgets. On the consumption side, total expenditure declines by 2.9%. This aggregate decrease is driven by a 4.0% reduction in work-related expenditure and a 2.6% fall in other nondurable expenditures, alongside a more modest 1.4% decrease in food and clothing expenditure. Conversely, recreation and leisure expenditures rise substantially by 3.2%. On the asset side, households shift towards safer and more liquid holdings – demand and term deposits increase by about 11.2% and 6.4%, respectively – accompanied by a significant expansion in housing wealth. Mechanism analysis reveals that changes in time use and heightened precautionary motives underpin these behavioural shifts. The results, robust to a range of checks, are local to compliers induced by the age-60 eligibility rule and inform the design of pension systems and the ‘silver economy’ in ageing societies.