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What Expenses Rise — and Fall — in Retirement?

Retirement planning involves making a number of assumptions about spending after retirement – but how much — and on what — do retirees actually spend their resources?

According to the Bureau of Labor Statistics (BLS), housing is the greatest expense in dollar amount and as a share of total expenditures for households that include someone age 55 and older, both in dollar terms ($16,219) and as a share of annual expenditures (32.9%) for older households.

Spending was greatest ($18,006) for the 55-64 age group, decreasing to $15,838 for the 65-74 group before declining to $13,375 for the 75-and-older group. This decline was statistically significant, according to the BLS, and reflects the decline in mortgage debt among households. Indeed, among older homeowner households, 59.5% were mortgage free. The proportion of homeowners without mortgage debt was 44.2% for the 55-64 age group, 61.7% for the 65-74 group, and 82.5% for the 75-and-older group.

Not surprisingly, the share of the household budget devoted to health care increased with the age of the reference person, from 8.8% for the 55-64 age group to 15.6% for the 75-and-older group. The dollar amount spent on health care was $4,958 for the 55-64 group, $5,956 for the 65-74 group, and $5,708 for the 75-and-older group. With household size taken into account, per-person health care spending would be $3,135 for the 65-74 age group and $3,568 for the 75-and-over group. Previous research using data from the Health and Retirement Survey also found a positive association between health care expenditures and age in older households.

Spending Declines

Spending was, of course, less on some things, notably contributions for pensions and Social Security, both in dollar amount and as a share of the household budget – and declined more as the age of the reference person increased and the number of earners decreased. For the 55-64 age group, contributions averaged $6,578 (11.7% of the household budget) with sharp declines for the 65-74 age group ($2,788 and 5.7%) and 75-and-older group, ($800 and 2.2%).

Similarly, clothing — often considered a work-related expense that should decrease when household members retire — did, in fact decline. Clothing expenses went from a high of $1,789 for the 55-64 age group to a low of $683 for the 75-and-older group. Previous research has found that even after controlling for the effects of income, family size, and other factors, spending on clothing declines with age. Also, retirees spent less on clothing, even with age and other factors taken into account.

Transportation, like clothing, is considered a work-related expense, and as a result, spending would be expected to decrease with the age of the reference person and the accompanying decline in the number of earners per household. Older households spent $8,002 on transportation, ranging from a high of $9,321 for the 55-64 age group to a low of $5,091 for the 75-and-older group.

The aging of the U.S. population will influence the economy for many years to come. The Census Bureau projects that in 2050, the population aged 65 and older will be 83.7 million, almost double its estimate of 43.1 million in 2012.

This BLS analysis used integrated data from the 2014 Consumer Expenditure Survey (CE), which separates the 55-and-older age range into three groups: ages 55-64, 65-74, and 75 and older.

Total annual expenditures averaged $49,279 among older households. Expenditures declined from $56,267 for the 55-64 age group to $36,673 for the 75-and-older group.

Older households spent $6,066 on food, ranging from a high of $6,800 for the 55-64 age group to a low of $4,349 for the 75-and-older group. Entertainment spending averaged $2,604 for the group as a whole. Existing studies using this data found that, other factors being equal, entertainment spending declines with age.