The hardworking ant of Aesop’s story had a very good idea as to how much food he needed to store away…
Perhaps he based his calculations on current lifestyle, assumptions to the severity of the upcoming winter, goals to which aspired (would he entertain grasshopper at a dinner party?), and potential loss of investment—was food spoilage a possibility?
This week, an examination of one of many retirement planning variables: how and where are older people spending money? What choices do they face?
Knowledge of spending trends and the financial challenges seniors face now will help retirees consider their options.
And, the experiences of older people today will enlighten others who plan their “winter stores,” as well as the financial service providers who lend a helping hand.
‘Don’t simply retire from something; have something to retire to.’–Harry Emerson Fosdick, American pastor
The Employee Benefit Research Institute asks, “How Does Household Expenditure Change With Age for Older Americans?”
This analysis uncovers a few patterns of interest. First, housing costs are the largest expense. Second, health-care spending increases with age, and constitutes the second-largest expenditure for people over age 75.
Other expenses decrease with age, including money spent on entertainment and transportation, while outlays for food and clothing stay about the same.
“Until Americans hit the latter retirement years, when health care expenses… scale up, they’re spending far less than 85% of their pre-retirement income on average,” notes Fortune, citing two recent studies. “Even the 70% number can look aggressive.”
The common notion is that consumers should plan to spend 70% to 80% of pre-retirement earnings, an amount that may overestimate requirements.
Further findings: those age 65 spend $4,000 on health care each year, an amount that will grow 7% to 8% on average.
More revelations on pricey health care are found in “Retirement Health Costs: Planning for the Wild Card.” It reveals “What We Know About Retirement Health Costs,” including:
‘I need to retire from retirement.’ --Sandra Day O’Connor
Another trend? More multigenerational households: “A record 57 million Americans” live in this situation.
That’s because some boomers delay retirement as they offer financial help to not only their parents and kids, but sometimes grandkids, according to USA Today.
“There are already enough pressures on Boomers hoping to retire. The average person has a retirement savings balance of $81,000… And 50% of people… don’t expect to retire at 65… But the new trend is straining resources even more.”
That expensive house can be a challenge as one-third of adults over age 50 pay more than 30% of their income for housing, making them “housing cost burdened” explains Reuters, referencing a Harvard study.
“Severely burdened” older consumers “spend more than 50% of income on housing. That group spends 43% less on food and 59% less on health care compared with households that can afford their housing.”
Indeed, there are “Many Seniors Trying to Retire with a Mortgage” the Los Angeles Times reports, and this is a challenge.
The recession stalled consumer ambitions to pay off mortgages, and “The number of mortgage-holding households headed by someone 65 or older rose from 3.8 million in 2001 to 6.1 million a decade later,” notes the article.
“The debt burden also grew” as older homeowners in 2011 owed a median amount of $79,000, compared to the inflation-adjusted $43,400 10 years earlier.
But housing is a nonissue for some. “Increasingly, Retirees Dump Their Possessions and Hit the Road,” reports The New York Times. “They are American retirees who have downsized to the extreme, choosing a life of travel over a life of tending to possessions. And their numbers are rising.”
In fact, the percentage of retirees traveling across the border reached 13% in 2012, up from 9.7% in 1993. And in 2013, some 360,000 Americans got their Social Security payments at a foreign locale, “about 48% more than 10 years earlier.”
‘I keep going because if you stop, you stop. Why retire? Inspire.’–Mickey Rooney
Some may be inspired to delay retirement because of the inability to repay student loans, according to the Government Accountability Office.
Older households are less likely to carry student loan debt than mortgages or credit card debt. Student loan debt has, however, been on the upswing.
“While those 65 and older account for a small fraction of the total amount of outstanding federal student debt, the outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.”
These borrowers default on student loans “at a much higher rate, which can leave some retirees with income below the poverty threshold.”
And, part of Social Security payments can be claimed to pay off student loans. For people age 65 and over, the number whose benefits were offset rose from roughly 6,000 to 36,000 from 2002 to 2013, a roughly 500% increase.
The number of student debt holders age 50+ is up 130%, from three million in 2005 to 6.9 million in 2012.
Monitoring age-related spending trends is an important component in planning strategies for those who look ahead, as well as for already retired “ants and grasshoppers” who must remain vigilant.
Like the prudent ant who understood his needs, those with awareness of expenses and required resources can accurately plan to cover the financial demands of advancing age.
LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora, and visit the CUNA blog, “The Research Roundup: Economic Perspectives.”