Retiree spending patterns are a pivotal part of planning, yet there appears to be confusion as to what actually happens in retirement.
A US study by JPMorgan Asset Management using de-identified credit card, debit card, electronic payments and ATM transactions for 12 months in 2016 came away with three main conclusions:
- Overall spending levels decline with age on a real dollar basis.
- There is a spending surge leading up to retirement.
- Retirees experience spending volatility as they transition into retirement.
However, the Australian Centre for Financial Studies (ACFS) analysed data from Household Income and Labour Dynamics in Australia (HILDA) – derived from annual panel surveys undertaken with 9500 households across Australia since 2002 – and came away with different findings. It found that:
Households do not show a decline in expenditure through the course of retirement
ACFS says that a common theme in retirement literature is the expectation that household expenditure will decline as retirees lose mobility and reduce discretionary spending. “However, the HILDA data shows that retired households aged 73–76 in the 2014 survey did not report lower expenditure for their household on an inflation-adjusted basis than they did in the 2006 or 2010 surveys. Households in the 83–86 age range reported slightly higher expenditure than in 2006 and 2010,” it says.
“The composition of household spending was fairly constant in the early years of retirement. However, after age 75, expenditure on food decreased slightly and expenditure on utilities increased slightly.”
Today’s retirees are spending more than earlier retirees did at a similar age
In the 2014 HILDA survey, retirees in all age brackets reported a higher level of expenditure (inflation adjusted basis) than their cohorts in the 2006 survey. The biggest increase in expenditure was in the 85-plus age group. Reported average annual expenditure in this cohort increased from $20,017 per annum in 2006 to $27,279 in 2014, or a 36 per cent increase.
The level of household expenditure varies more according to geographic location than it does by level of income
There is a bigger difference in household expenditure according to urban or rural living than there is by income deciles. The biggest difference in the level of expenditure was between households located in Sydney, where household expenditure was $44,672 on average, as against households located in regional South Australia, where household expenditure was $22,017 on average in 2014.
This is the wealthiest retired generation ever in Australian history, with household wealth and income continuing to increase with each successive HILDA survey
Households in their late 50s in 2014 held 25–40 per cent more net wealth than their same-aged peers reported in 2002 (inflation adjusted). The average net wealth of households aged 70–74 has more than doubled since 2002, from $562,000 to more than $1 million.
Early stage retirees are wealthier than ever before, possibly setting higher expectations for the standard of living in retirement.
Median wealth shows similar growth over the period, with 74 per cent growth in wealth for households aged 70–74 and 36 per cent for households aged 55–59, but at a much lower level. The median wealth of a household aged 65–69 in 2014 was $685,000, compared with average household wealth of $1.24 million.
After reviewing the HILDA data, investment management company Challenger concluded that retirees’ spending on regular essentials remained broadly constant in real terms, although older retirees spent less than younger retirees.
“The same is not true for total spending,” it says. “Household expenditure data from the ABS shows that total spending falls with age. Older retirees spend a smaller proportion of their total spending on ‘wants’, with a higher proportion being spent on needs. While the needs are broadly constant, the reduction in ‘wants’ leads to a decline in overall spending.”
What is your experience of retirement spending patterns? Do you spend more at the start of retirement and less as the years roll on? Or is overall spending consistent?
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