Tuesday, May 08, 2012

Spending Decline in Retirement

As people transition into retirement, their spending declines. By examining the Consumer Expenditure Survey over time, the size of the decline can be estimated. In 2010, householders aged 65 to 74 spent $41,434--considerably less than the $49,816 householders aged 55 to 64 spent in 2000 (in 2010 dollars). As households transition from one age group into another, household spending declines by 17 percent.

Source: Bureau of Labor Statistics, Consumer Expenditure Surveys


Richard Jarrard said...

Sincere thanks to Cheryl Russell for recognizing that the Consumer Expenditure Survey (which ignored the topic of retirement) had important implications for retirement, and for crunching the numbers to extract those implications.

Personal spending may decrease by less than 17%, though, because part of that 17% expected decrease in household spending is due to a 12% decrease in number of persons per household. Also, many of us face a challenge when projecting our budgets into the future based on the 2000-2010 period. The BLS data show that for ages 55-64, 65-74, and >75, inflation-adjusted household spending rose throughout the period 2000-2007. During 2008-2010, in contrast, spending dropped 10% for ages 55-64, dropped slightly for ages 65-74, and was flat for ages >75. Thus, we cannot readily compare pre-retiree spending during boom years 2000-2006 with retiree spending during cutback years 2008-2010.

Cheryl Russell said...

Looking at changes in household spending by an aging cohort is only a rough estimate of the change in spending that accompanies retirement. Mr. Jarrad makes a good point that the decline in spending between the 55-64 and 65-74 age groups is due in part to a decline in household size. Average household size for 55-64-year-olds in 2000 was 2.1 persons. For 65-74 households in 2010 it was 1.9 persons.

The increase in spending among the older age groups over the past decade has been due to the greater affluence of younger cohorts of the elderly as they age, and to the indexing of pensions and Social Security to inflation. It is doubtful that this trend will continue as boomers fill the age groups. It will be interesting to see how well the household spending indicator tracks the real world experience of aging boomers in the years ahead.