April 28, 2022

Health and Wealth Drive Retirees’ Spending

Previous research has shown that spending drops immediately at the moment the paychecks stop, and a few studies have found that households, once retired, reduce their consumption over time.

But a new study that also takes the long view suggests that the spending decline is not what retirees want to do but what is necessitated by their financial and health constraints.

The analysis, which used data from two national consumption surveys, divided retired households into groups to get a sense of what goes into their spending decisions. The researchers compared the consumption patterns of retirees at three different wealth levels over a 20-year period and then compared consumption for three states of health.

The evidence that financial resources drive behavior is that the wealthier households’ consumption was relatively constant, declining just one-third of 1 percent a year.

While these retirees have the financial wherewithal to largely maintain their spending, retirees in the bottom wealth tier saw bigger drops of 1 percent a year. When accumulated over 20 years, the declines produced much lower spending levels than when they first retired.

Health is a second factor in retirees’ decisions. Again, the extremes tell the story. Spending in the top tier – very good or excellent health – held fairly flat, while the retirees in fair or poor health saw relatively large declines. Even if they can afford to travel or eat out frequently, health problems may be preventing them from enjoying their money. …Learn More