Results from the Employee Benefit Research Institute’s (EBRI) 2022 Spending in Retirement Survey finds that many retirees are reporting that their expenses are higher than expected.
In assessing how spending patterns and retirement well-being have changed since 2020, EBRI’s survey of nearly 2,000 American retirees between the ages of 62 and 75 reveals that retirees were more likely to report that their spending is “much higher” or a “little higher” than they can afford in 2022 — at 27% in 2022 compared to 17% in 2020.
Among those who decreased either their essential or discretionary spending since the pandemic, the most common reason cited by roughly 9 out of 10 retirees was concern about inflation.
“Inflation appears to be a major driver of the misalignment between expectations and reality, a double-edged sword that undoubtedly increases actual spending but also reduces spending, likely out of a desire to protect future purchasing power,” notes Bridget Bearden, research and development strategist at EBRI.
To that end, nearly half of retirees (48%) said they spend less than $2,000 each month, while a third (33%) said they spend between $2,000 and $3,999 each month. EBRI observes that this marks an increase from 2020, when 42% of retirees spent less than $2,000 each month and 37% spent between $2,000 and $3,999. Black and Hispanic retirees were nearly twice as likely (28% and 26%, respectively) to report that their monthly spending was less than $1,000 compared with the overall sample (15%).
Overall, more than half (55%) retired earlier than expected, while 40% said they retired about when they expected and 4% later than expected. Black retirees (62%), those with 2021 household incomes below $30,000 (69%), and those with a poor self-reported health status (78%) were more likely to report they retired earlier than expected as compared with their non-Black, higher-income and healthier counterparts. The most common reasons for retirement were the ability to retire from an affordability standpoint (29%) and having a health problem or disability not related to COVID-19 (21%).
Meanwhile, even though more than half of retirees said their spending across an array of categories was about what they expected before retirement, many reported higher-than-expected expenses. Approximately 26% of retirees said that they are spending more than expected on housing costs and health and medical insurance. In addition, 20% of retirees said that they are spending more than was expected on medical bills.
Income Sources
Similar to the 2020, 7 in 10 say Social Security is a major source of their income. EBRI observes that annual household income was positively related to reliance on Social Security as a major income source; 82% of retirees with less than $30,000 in annual household income said Social Security is a major income source, as opposed to 45% of retirees with greater than $100,000 in annual household income.
Regarding employer-sponsored defined benefit plans, fewer retirees reported that a DB or traditional pension plan was a major source of income (35%) in 2022, compared with 2020 (41%). Not surprisingly, married retirees and those with higher annual incomes were more likely to report DB plans as being a major source of income in retirement. As for defined contribution plans, 36% reported they are a “major or minor” source of income, while more than half (64%) said they are not a source of retirement income.
Perhaps not surprisingly, those who are dissatisfied with retirement and those with poor self-reported health status (a score of 1, 2, or 3 on a scale of 1–10) are more likely to rely on Social Security as a major source of income (85% and 83%, respectively).
Some of the retiree segments who shared lower standards of living, low alignment with expectations, and low satisfaction in retirement included those:
- without a DB plan or other annuity income;
- with low financial knowledge;
- who do not use an advisor;
- who are not married; and
- who are female retirees.
At the same time, only 3% overall said they had plans to convert any current income sources into a guaranteed income stream, while 55% said they had no plans to and 15% were not sure. Hispanic retirees were more likely to say they are planning to convert to a guaranteed income stream at 7%.
In contrast, the retiree segments that shared more positive perceptions of life in retirement based on standard of living, alignment and satisfaction included those with DB or other annuity income, those with high financial knowledge, those using an advisor and married retirees.
The survey was fielded during the summer of 2022.
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