Question

Suppose, that after a successful career, a worker retired precisely as planned with precisely the amount saved that they intended. Upon retirement, they reduced their consumption and spent much less, living a much more simple life. Is this behavior consistent with the permanent income hypothesis?

Answer 1

Answer: Yes it is

Explanation:

The Permanent Income Hypothesis posits that human expenditure in the short term is based on the amount of income they expect to get as income over the long term.

If a person for instance, knows that they will receive a pay cut at the end of the year, they will probably spend less today to survive the pay cut.

Same goes for the worker in this scenario. They know that the amount they saved is all they have now and into the future so they are adjusting their expenses to ensure they survive on that saving.