Retirement consumption puzzle in Japan: Insights from pension and senior worker employment policy changes

Previous studies in Japan have examined the retirement consumption puzzle (RCP) when mandatory retirement was prevalent. However, the retirement landscape has significantly evolved due to rising public pension ages and enhanced policies promoting employment among senior workers. This study explores household consumption behavior as a result of these recent shifts, particularly focusing on the increasingly common practice of partial retirement. We investigate household consumption during retirement, considering partial retirement enabled by policies allowing continued part-time work or self-employment beyond the mandatory retirement age, and address endogeneity issues between retirement and consumption. Our findings reveal that non-durable and food expenditures increase during partial retirement, driven by liquidity effects from substantial retirement lump-sum payments. These results challenge the traditional understanding of consumption patterns in an aging society, highlighting the impact of changes in work environments.