EBRI Finds Elderly Spending Patterns More Diverse Than Expected

Washington, D.C. – December 10, 2020 – A new study from the Employee Benefit Research Institute (EBRI) finds elderly spending patterns are more diverse than is typically accounted for, and that understanding these variations in spending can improve the accuracy of predicting household budgets during the retirement planning process.

 

Using data from the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS), “Spending Profiles: Findings From the HRS and CAMS” identifies four spending types: Typical, Home, Health, and Discretionary. EBRI finds that spending patterns reveal important insights into elderly spending that could impact retirement savings and investing strategies.

 

Understanding EBRI’s Four Spending Profiles

 

This study analyzes the estimated total spending and allocations for individual categories in HRS/CAMS, from which four mutually exclusive spending profiles were created:

 

Typical Spender: Typical spenders have no large variation in spending relative to the overall sample average. Younger typical spenders—those within the 55-64 age group—are slightly more likely to be part of a couple, and just under a quarter have a college degree. Nearly half (48 percent) are either retired or partially retired. Just under a third (29 percent) receive a pension or annuity income and the median age of those claiming Social Security was 61.5 years old. Slightly more (54 percent) of typical spenders ages 65-74 are single versus their younger counterparts, and 62 percent of typical spenders age 75-85 years old are single. Both older typical spender age groups are more likely than the younger typical spenders to have pension income: 57 and 61 percent, respectively. 

 

Home Spenders: Home spenders are households allocating 60 percent or more of their total spending on housing expenses. They are far more likely to be single, have low levels of income and wealth, and are the least likely to hold a college degree. They are also more likely to report their labor market status as disabled, unemployed, or out of the labor force. Those falling into this category are least likely to have pension income across all age cohorts and those ages 55-64 are the most likely to claim their Social Security benefits early.

 

Health Spenders: Health spenders are households allocating 20 percent and more of their total spending on out-of-pocket health expenses. Those in the 65-74 and 75-85 age cohorts have the highest likelihood of reporting poor health status (26 and 30 percent, respectively) and the highest levels of utilizing medical care. Health Spenders that are 55-64 years old are the most likely to be retired or partially retired (58 percent) and the second-highest likelihood to claim Social Security benefits early after Home Spenders.

 

Discretionary Spenders: Discretionary spenders are households allocating 25 percent and more of their total spending on entertainment, gifts, and contributions categories. Discretionary Spenders are more likely to be part of a couple and have the highest likelihood of holding a college degree compared with other spenders. They also have higher levels of income and wealth across all age cohorts and are the least likely to report poor health status. Many of these spenders say they are partly retired -- more than any other spenders in the 55-64 and 64-75 age cohorts. This suggests that they are taking a gradual transition path to retirement. They also have the highest likelihood of receiving pension income, and those 55-64 years old are more likely to claim their Social Security benefits at older ages.  

 

“The findings of this research show some very distinct spending patterns of pre-retirees and retirees, and this needs to be considered when tools and approaches are developed to help people spend down their retirement nest egg,” said Zahra Ebrahimi, EBRI Research Associate, and author of the report. “By incorporating retirees spending types and the correlated factors into retirement planning, financial professionals will be better equipped to offer more specific and targeted solutions.”

 

The full report “Spending Profiles: Findings From the HRS and CAMS” can be found at www.ebri.org. EBRI will continue to explore this topic further by releasing another brief in early 2021 using the results of a recently conducted survey of retirees’ spending.

 

About EBRI

 

The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and financial security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, who include a broad range of public, private, for-profit and nonprofit organizations. For more information visit www.ebri.org.