In this age of longer life spans, age 50 might not seem old, but housing and health care spending are having a significant impact on the over 50 cohort; one that’s growing, according to a new report from the Employee Benefit Research Institute and the Institute for Social Research at the University of Michigan
“Home and home-related expenses remain the single largest spending category for older Americans, followed by health care expenses,” said Sudipto Banerjee, research associate with EBRI and author of the new report. “However, health care spending is the only component which steadily increases with age: It captures around 10% of the budget for those between 50 and 64, but increases to about 20% for those aged 85 and over.”
Data from the report also shows that demographic sub-groups such as singles, blacks and high school dropouts are outspending their resources in retirement.
The EBRI report notes that, before retirement, people pay FICA (Social Security) taxes, incur work-related expenses, and set aside money for retirement. But after retirement, most people have different financial obligations, and, as a result, retirees may be able to maintain their level of pre-retirement well-being with very different income levels.
Among the report’s other major findings:
- On average, retired households spend about 80% of what working households spend, and their earnings are about 57% that of working households.
- Household consumption steadily declines with age.
- Declining health limits activities and consumption of different goods, which strongly affect the decline in total expenditure.
- Home and home-related expenses remain the largest spending category for older households, followed by health care expenses. Health care expenditure is the only spending category that steadily increases with age.
- Demographic sub-groups such as singles, blacks, and high school dropouts are outspending their resources in retirement. Not surprisingly, the lowest-income quartile, which is generally overwhelmingly represented by these groups, appears to be struggling the most financially.
- Having long-term care insurance has a significant effect on higher spending by retired households.