Title: Retirement spending and biological age,
Abstract: We solve a lifecycle model in which the consumer's chronological age does not
move in lockstep with calendar time. Instead, biological age increases at a
stochastic non-linear rate in time like a broken clock that might occasionally
move backwards. In other words, biological age could actually decline. Our
paper is inspired by the growing body of medical literature that has identified
biomarkers which indicate how people age at different rates. This offers better
estimates of expected remaining lifetime and future mortality rates. It isn't
farfetched to argue that in the not-too-distant future personal age will be
more closely associated with biological vs. calendar age. Thus, after
introducing our stochastic mortality model we derive optimal consumption rates
in a classic Yaari (1965) framework adjusted to our proper clock time. In
addition to the normative implications of having access to biological age, our
positive objective is to partially explain the cross-sectional heterogeneity in
retirement spending rates at any given chronological age. In sum, we argue that
neither biological nor chronological age alone is a sufficient statistic for
making economic decisions. Rather, both ages are required to behave rationally.