Retirement Spending Averages Hide A Lot

EBRI research shows households do, on average, spend less once they reach retirement, “but not all households, and not in the same ways.”

The first two years of retirement bring a modest drop in spending for the majority of Americans, according to new research from the Employee Benefit Research Institute (EBRI).

Still, nearly half of retired households (approximately 46%) wind up spending modestly more than they did just before retirement, EBRI says. “That declines over time, and by the sixth year of retirement, just a third spend more than they did pre-retirement.”

“We also found that households that spent more in the first two years of retirement were not exclusively high-income households,” explains Sudipto Banerjee, research associate at EBRI and author of the report. “Rather, they were distributed across all income levels.”

The research once again highlights the highly personal nature of retirement income distribution, which many industry practitioners describe as vastly more challenging from a planning perspective than accumulation. 

To get a handle on retirees’ current behavior, EBRI studied the spending patterns of a fixed group of households for up to six years after retirement. The underlying data was derived from the Health and Retirement Study (HRS), which is a survey of a nationally representative sample of U.S. households with individuals over age 50 and is described by EBRI as “the most comprehensive survey of older Americans in the nation and covers topics such as health, assets, income, and labor-force status in detail.” Additional data came from Consumption and Activities Mail Survey (CAMS), which was started in 2001 as a supplement to the HRS and contains detailed household spending information.

EBRI finds the first two years of retirement see median household spending drop by 5.5% from pre-retirement spending levels, and by 12.5% by the fourth year of retirement. Importantly, the spending reduction slowed down after the fourth year.

NEXT: Sources of savings vary 

EBRI explains that, in the first two years of retirement, two in five households spent less than 80% of what they spent annually pre-retirement, and by the sixth year of retirement a slight majority of households did so.

A worrying prospect for many, in the first two years of retirement, is that nearly three in 10 households did essentially the opposite, clocking more than 120% of their pre-retirement spending year on year. By the sixth year of retirement, nearly the same number, about 23%, of households still did so.

It makes sense that the spending patterns are not necessarily tied to income level, given that different wage earners all face lifestyle changes and expected/unexpected events related to retirement. However, some factors seem to be far more indicative than income level when it comes to predicting spending changes heading into and during early retirement, EBRI says. In particular, the research highlights the fact that the median household “has a home mortgage payment before retirement but none after retirement, indicating paying off mortgage could be a factor in the timing of retirement.”

These findings are from the full report, “Change in Household Spending After Retirement: Results from a Longitudinal Sample,” published in the November 2015 EBRI Notes and online at