Home-Related Costs Top Retirement Expenditures

Americans age 50 and older spend less in retirement than in their working years, and home-related expenses remain their most expensive items.

Health costs are the second-biggest expense for older Americans, according to a report by the Employee Benefit Research Institute (EBRI).  Healthcare is the only spending category that steadily increases with age.

Data show that demographic sub-groups such as singles, blacks, and high school dropouts are outspending their resources in retirement. The EBRI report notes that before retirement, people pay FICA (Social Security) taxes, incur work-related expenses, and set aside money for retirement. But after retirement, most people have different financial obligations, and, as a result, retirees may be able to maintain their level of preretirement well-being with very different income levels.

On average, retired households spend about 80% of what working households spend, and their earnings are about 57% that of working households. Household consumption steadily declines with age. Specifically, declining health limits activities and consumption of different goods, which strongly affect the decline in total expenditure.

The full article, “Expenditure Patterns of Older Americans, 2001‒2009,” documents the income and expenditure patterns of Americans who are retired or close to retirement, using data from the Health and Retirement Study (HRS) and its supplement Consumption and Activities Mail Survey (CAMS). Both surveys were conducted by the Institute for Social Research at the University of Michigan.

The EBRI analysis examines income, expenditures, and wealth-holding patterns to provide a more complete idea of how people are doing in terms of being able to afford retirement, compared with arbitrary estimates such as income replacement ratios.

The full article, “Expenditure Patterns of Older Americans, 2001‒2009,” appears in the February 2012 EBRI Issue Brief.