Data & Research May 27, 2016

Housing Costs Never Really Go Down for Clients

A new Beyond the Numbers blog post from the Bureau of Labor Statistics examines the real spending patterns of older Americans and their households.  
Reported by

Data from the Bureau of Labor Statistics shows housing is the “greatest expense in dollar amount and as a share of total expenditures for households with a reference person 55 and older.”

This finding is reported in a new Beyond the Numbers blog post, which includes some interesting and extensive charts on the ways older Americans spend their dough. Matching volumes of other research published by industry providers and academics alike, the blog post projects that the aging of the United States population will influence the economy in many ways for many years to come.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

According to the blog, age 55 is an important reference point for thinking about the way the U.S. population spends and saves: “Age 55 was chosen because the article focuses on spending changes that occur as household members age and transition to retirement,” with one’s 55th birthday kicking off the last decade of quality prep time before the typical retirement age of 65.

In 2014, older households with a reference person at least 55-years old made up 41.5% of the sample of the Bureau’s Consumer Expenditure (CE) Survey, compared with 37.5% in 2009 and 34.6% in 2004, reflecting the aging of the U.S. population. For the population as a whole, annual pre-tax income was $58,528, the blog post explains. Pre-tax income was $75,241 for households with a reference person 55- to 64-years old, declining to $35,467 for households with a reference person 75 and older.

While housing expenditures do decrease somewhat in dollar terms as a person ages ($18,006 per year for the 55 to 64 age group, declining to $15,838 for the 65 to 74 group and $13,375 for the 75-and-older group)  they remain a significant expense throughout one’s latter years. When weighed against income, one can see that the oldest actually pay the most on housing relative to the amount of money coming in.

At the mean, the numbers imply that the typical retiree is directing more than one-third of annual income to meet housing costs, compared with between 8% and 16% on health care, depending on exactly how old the individual is.

“Housing was the greatest expense in average dollar amount and as a share of the household budget for older households,” the blog concludes. “Housing expenses declined with the age of the reference person and accompanying increase in the proportion of households without mortgage debt. Whether this pattern will continue is unclear. One explanation is that data from the Survey of Consumer Finances show that the proportion of families with heads ages 55 or older with housing debt increased steadily from 24% in 1992 to 42% in 2010. The increase was more pronounced for families with heads ages 65 to 74 and 75 and older.”

Data & Research May 27, 2016

Income Volatility a Challenging Factor in Retirement Planning

Results of the Federal Reserve’s latest Survey of Household Economics and Decisionmaking suggest income volatility has become a real hurdle to retirement saving and wealth forecasting. 
Reported by

Those looking for a clear positive or negative indicator summing up the results of the Federal Reserve’s 2015 Survey of Household Economics and Decisionmaking are going to come away disappointed.

Fed officials see “reasons for optimism as well as concern about the financial wellbeing of individuals and their families.” On one hand, when looking at aggregate-level results for the population, there are signs of improvement across a number of dimensions, yet other indicators present a more worrying front. 

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“On the vast majority of financial measures for which comparisons can be made between the three years of survey data, the most recent results indicate that individuals’ financial picture is similar to, or better than, it was in the two earlier years,” Fed officials explain. “Relative to the previous two surveys, more respondents are saving at least some of their income; a slightly larger fraction say that they would be able to cover a $400 expense without borrowing money or selling something; and more adults believe that they have the skills needed for the types of jobs that they want right now.”

Retirement industry professionals will know that averages can be quite deceiving, and as the Fed explains, there is mounting evidence that these improvements are not necessarily being experienced universally. Adding some interesting new color to recent research into the increasing burden presented by student debt, the Federal Reserve data suggests most of the financial improvements are reported by respondents who attended college—indicating that those with lower levels of education are still struggling.

Additionally, according to the Fed, “many respondents report that they experienced some level of volatility in their income and expenses, and among those with lower incomes, this volatility often results in difficulty paying monthly bills.” It’s no great leap to see how unanticipated income volatility, at all income levels, can wreak havoc on otherwise well-considered retirement planning strategies.

NEXT: It’s a tough job to save for retirement for many 

In addition to asking respondents about the retirement savings that they currently hold, the survey asked respondents about the sources of income that they plan to use to pay for expenses in retirement. There are significant differences by age in the sources of funds that respondents expect to use to pay for retirement expenses, and “this is especially apparent with respect to Social Security.” Forty-two percent of those under age 30 say that they anticipate that Social Security benefits will be part of their plan to pay for expenses in retirement. This percentage steadily increases by age cohort, with up to 91% of those age 60 or older expecting to receive Social Security income in retirement.

“It is unclear whether these differences simply highlight the fact that older adults are likely to be thinking more actively about Social Security or if they represent diminishing levels of confidence among younger people about the future availability of Social Security benefits,” Fed officials explain. “Similarly, traditional defined benefit pension plans are less common as an expected source of retirement funding among younger respondents.”

Highlighting the limits of the defined benefit system, just 36% of those age 60 and older “are counting on income from a defined benefit pension,” while 23% of those ages 18 to 29 plan on receiving income from a pension. “Just over half of respondents expect to draw on a 401(k) account in retirement, 44% of respondents plan to rely on savings they hold outside formal retirement accounts to cover their expenses, and 32% plan to use savings in an individual retirement account (IRA).”

Findings also show a sizable group of people, nearly one in five, expect to sell or rent land or real estate to pay for retirement expenses, and many non-retirees also expect continued employment to be a significant source of retirement income, with 38% of all respondents expecting to continue working in some capacity “post-retirement” to cover their expenses and 22% expecting their spouse or partner to continue working.

Concluding its report on the survey results, Fed officials say there is “little question that, on the whole, the financial well-being of Americans seems to have improved relative to the prior year and relative to the year before that.” However, groups of consumers still display elevated levels of financial stress and remain at risk for financial disruption in the case of further economic hardships.

The full results are reported here.

«