Household spending decreases with age, according to the Employee Benefit Research Institute’s (EBRI’s) study of the Health and Retirement Study and the Consumption and Activities Survey for older Americans between the ages of 50 to 64, 65 to 74 and 75 and older, between 2005 and 2017.
EBRI notes that a common approach to planning for retirement is to assume that people should spend a certain level of pre-retirement income for every year throughout retirement. “However, evidence from actual retiree spending patterns challenges this assumption,” EBRI says in its issue brief, “How Do Retirees’ Spending Patterns Change Over Time?” “A series of focus groups and surveys conducted by the Society of Actuaries and their partners found that the spending patterns of early versus late retirees differed dramatically.”
The reason for this, EBRI says, is that when a person first retires, they have time for hobbies, which could be expensive, like golf, and for socializing, which includes eating out at restaurants. Once a person has been retired for 15 years or more, they begin to cut back on their spending, due to inflation eating into their savings.
EBRI found that the average household expenses for those 50-64 were $55,000 in 2005. In that same year, they were $43,000 for those 65-74, which was 22% less. For those 75 and older, total household expenditures were $33,000, or 23% less than the 65-74 age cohort and 40% less than the 50-64 age cohort. This pattern was consistent across all survey years.
Housing was the greatest expense, both in terms of dollar terms and share of annual spending. For those 50-64, it ranged from $23,000 to $25,000 a year. For those 65-74, it ranged from $17,000 to $21,000 a year, and for those 75 and older, the range was $13,000 to $18,000 a year.
While there are minor differences in the proportion of total good expenditures among the different age groups, households spent less on food as they grew older, ranging from a high of $5,000 to $5,500 for the 50-64 age group to a low of $3,000 to $4,000 for the 75 and older age group. Average spending on food for those between the ages of 65 and 74 ranged from $4,400 to $4,900.
Not surprisingly, the share of household budgets devoted to health costs increased with age. However, the average and median dollar amounts did not show large variations across age groups in any given year. Those 50-64 spent between $4,100 to $4,500 on health care. Those 65-74 spent $4,100 to $4,700, and those 75 and older spent $4,000 to $5,000.
Transportation expenses declined with age both in dollar terms and in share of total spending. Those 50-64 spent between $6,700 to $8,200 a year on transportation. Those 65-74, $5,000 to $5,700. Those 75 and older, $2,900 to $3,800.
Clothing expenses also declined, from a range of $1,400 to $1,800 for the 50-64 age cohort, to a range of $1,200 to $1,500 for the 65-74 age cohort, to $911 to $1,200 for those 75 and older.
Entertainment expenses also declined, showing a major drop-off for those 75 and older. They ranged from $4,500 to $5,400 for those 50-64, to $4,100 to $5,400 for those 65-74, to $2,500 to $3,600 for those 75 and older.
Contributions also ticked downward, but only so slightly. They ranged from $2,900 to $3,400 for those 50-64, to $2,700 to $3,600 for those 65 to 74, to $2,700 to $3,200 for those 75 and older.
In conclusion, EBRI says “people spend more early in retirement and gradually decrease their spending as they age. This research also suggests that retirees are adept at adjusting their consumption as need in order to fit their circumstances, such as reducing spending in times of a market downturn or recession. Indeed, those ages 75 or older were spending on average a third less than those ages 50-64.”