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How Do Retirees’ Spending Patterns Change Over Time?

The Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS), examined the spending behavior of older Americans for the 50–64, 65–74, and 75-or-older age groups between 2005 and 2017, biennially, with the following observations:

  • Average annual total spending is lower for households in older age groups compared with those in younger age groups.
  • Housing is the largest spending category for every age group, and in all survey years studied except 2017, the median share of households’ budgets allocated to housing expenses was smaller for older households.
  • On average, households spent less on food as they grew older, and the average dollar amount spent on work-related expenses such as transportation and clothing declined by age.
  • The average amount spent on entertainment declined by age, and older households allocated a larger share of their budgets to gifts and contributions.
  • The share of health care costs in households’ budgets increased with age. However, the average annual share of health costs for the 65–74 and 75-or-older age groups declined after 2007, the year after Medicare Part D went into effect.
  • Across all age groups, for low-income households, a larger share of expenses was spent on housing and food compared with high-income households. This increased spending on necessities was offset by a reduction in the average share of spending on entertainment and gifts and contributions.
  • Median total income was lower for households in older age groups. In addition, they had higher median spending-to-income ratios than younger age groups.
  • The fraction of households who spent more than their income increased with age. However, the average amount overspent was lower for older age groups compared with younger age groups.
  • Median non-housing wealth increased with age but leveled off and even declined as households reached ages 75 or older. In addition, it was much lower for households with deficits — those who have spent more than their income — than for households without deficits.

The Spending Patterns of Early vs. Late Retirees Can Differ Significantly
Household Expenditures by Category in 2017 Dollars

**Entertainment: Sum of trips and vacations, tickets to movies and sporting or performing arts events; hobbies and leisure equipment (photography, reading, camping, etc.); dining out in restaurants, cafes, and diners; and take-out food.

Evidence from retiree spending patterns challenges the assumption that people can expect to spend a constant level — e.g., 75 percent of preretirement income — every year in retirement.

In general, spending declined during retirement. Also, the composition of spending changed over time: While housing remained the largest spending category for every age group, older households allocated a smaller share of their budgets to transportation and vacations/ entertainment and a larger share of their budgets to health care costs. However, the average annual share of health costs for the 65–74 and 75-or-older age groups declined after 2007, the year after Medicare Part D went into effect.

The Share of Health Costs Has Declined for Retirees Since 2007
Average Annual Share of Health Care in Household Expenditures for Ages 75+

The breakdown of the out-of-pocket health costs for those ages 75 or older indicates that most of the drop in total health costs for this age group is attributed to health insurance and drugs, while other components remained unchanged for the most part.


Source: Zahra Ebrahimi, “How Do Retirees’ Spending Patterns Change Over Time?,” EBRI Issue Brief Summary, no. 492 (Employee Benefit Research Institute, October 3, 2019).