As societies age, it’s important that we gain a better understanding of aging and older people. It’s a topic I’ve touched on before, with Stanford’s Susan Wilner Golden identifying around 25 different segments for post-65 people.
While displaying no such nuance, research from the RAND Corporation nonetheless highlights the general decline in spending in the over 65s, with this decline affecting not only those with less money but also the most affluent.
Older spending
The researchers analyzed data on the spending habits of older Americans and found that real spending adjusted for inflation fell by 1.7% for single households and 2.4% for coupled households after the age of 65. They believe their findings contradict the traditional wisdom that spending increases due to the relative affluence of many retirees.
“This research provides new insights about spending during traditional retirement years and should help households, policymakers and financial advisors better determine adequate saving rates during the working life and affordable spending levels during retirement,” they explain.
The researchers believe that the decline in spending happens across the board, among wealthy and poor alike, and that this may be less to do with their economic position than it is with their declining health.
Spending retirement
The researchers analyzed long-term information about the household spending of people over 65 who had participated in the Health and Retirement Study conducted between 2005 and 2019 by the University of Michigan.
The study estimated two-year rates of change in household spending, with these rates of change used to enable life-cycle trajectories of spending from a start point of 65 into advanced old age. Separate analyses were conducted for married persons and single persons, with each stratified by quartiles of wealth as was when they were between 65 and 69. This initial wealth stratification is important because lower-wealth households may have different spending trajectories resulting from their more-restricted economic circumstances.
The analysis revealed that the rate of decline in spending was largely independent of any wealth at the outset, which suggests that the decline is not linked to any budget constraints. Instead, the researchers believe it is likely to be caused by reductions in the need or desire for spending on things such as vacations, while spending on healthcare increases. This on its own is not enough to offset the decline in other areas, however.
The analysis found that household budget shares spent on gifts and donations increase with age, which suggests that economic position on average does not deteriorate with age, even as total spending declines.
“In determining retirement income needs, households and the financial planners should not rely on the common assumption that real spending will be constant or even increase, because this is not supported by household-level spending data,” the researchers conclude.
