A cross-country study of saving and spending in retirement

Research Retrieved: October 2017
Download PDF


Many retirees in both Australia and the Netherlands continue to accumulate wealth well into retirement, leaving large amounts of money as likely unintended bequests. As a result, living standards of retirees may be lower than expected under current private and public pension settings and government aims to improve retirement income adequacy could be compromised. It is therefore opportune to examine the motives behind such prevalent spending patterns, as well as the influence of institutional factors.

With the use of an experimental survey, the paper explores why individuals continue to accumulate wealth in retirement. Participants from Australia and the Netherlands are placed in their own and each others’ institutional settings and are asked to advise spending patterns and rank the importance of different motives for saving associated with this spending pattern. The hypothetical households differ in wealth and income and health expectations and family circumstances.

Key Findings

The most important reasons to hold on to wealth are: 1) precautionary health, intra-household bequest, and self-gratification for the Dutch participants, and 2) precautionary health, self-gratification, and security for the Australian participants.

The actual institutional setting of participants has an impact on consumption patterns, separate from hypothetical settings. In the absence of expectations of declining health, Dutch participants are more likely to advise a higher spending pattern (consistent with their high income and low wealth actual policy setting), while Australians are more likely advice more conservative drawdown (consistent with their high wealth and low income actual policy setting), irrespective of hypothetical policy settings. With major life events (e.g. health shocks, widowhood), the institutional setting (as proxied by the liquidity level) does influence the rankings of motives for saving, with health-related precautionary saving dominant in all settings. Overall, individual and country influences explain the majority of the variation in rankings.


Practical Relevance

The authors conclude that it might be advisable for policy makers to set pension design with a medium to high annuitization rate with limited choice opportunities to encourage optimal saving and spending decisions. As well, more comprehensive policy design to address costs associated with declining health in old age should be considered.