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How Spending Changes in Retirement

Posted May 25 2012 8:30am

We were speaking of retirement earlier this week and when I ran across a news item I had saved, I decided why not go whole hog in one week on this topic.

According to a study by the Employee Research Benefit Institute (EBRI), overall spending drops on average by about 20 percent after retirement from a median of $39,945 annually in working households to $31,365 in retirement households.

EBRI found the only major expense that increases after retirement is healthcare. In the working, 50-64 age group, health expenses account for about 9 percent of income. After age 85, it has doubled which, of course, makes sense.

Here are the EBRI survey results and how I stack up with them in the other five major expense categories:

HOUSING is the single largest expense for people of all ages, says EBRI.

”Home-related expenses represent 47 percent of all costs for people ages 50 to 64, which declines to 44 percent between ages 65 and 74.”

I've never spent that much. With a mortgage, homeowners insurance and property taxes, I was spending about 25 percent of income on housing before I retired. I have no mortgage now but counting homeowners association dues, ever-increasing property taxes and insurance but much lower income, I spend about the same 25 percent on housing.

TRANSPORTATION costs drop dramatically in retirement especially without a commute – from 14 percent of income for 50-64 year olds to a low of 8 percent for those 85 and older. Couples often can get by with one car in retirement rather than two.

I hardly notice auto costs. Especially during winter when I don't stray far from my town, I fill up the car with gas about once every six weeks. With insurance and registration, I spend about four percent of income on auto-related expenses.

EBRI says the amount spent on FOOD AND CLOTHING doesn't change much in retirement – 12 percent and 3 percent respectively. I know that with dry cleaning and my shoe fetish I spent a lot more than 3 percent on clothes when I was working. Nowadays, 3 percent or less sounds about right.

Food, however, is where I indulge myself. I eat out about twice a week and cook all my other meals. In the past eight or ten years, my grocery costs have been down because I hardly ever eat meat, but fresh vegetables and fruit prices have skyrocketed just in the past two or three years. It evens out, maybe, with the fact that varieties of good fish can be found frequently for only four or five dollars a pound.

I don't know the percent of my income food and clothing account for, but I don't feel constrained in spending for what I need and I don't feel deprived of either.

Without giving a percentage, the EBRI study says that GIFTS AND DONATIONS increase a great deal with age – for indulging grandchildren and because people “may decide as they age that they don't need all that money.”

It's hard to believe that the $31,365 average income of retired households is “all that money” to anyone. During my last few years of employment when I was trying to pay off some high medical bills and then the interim years following when I was scrimping by until eligible for full Social Security, donations were out of the question.

Well, if you don't count the no-kill pet shelter for which I squeezed out money. Now, I can better do my part although I often wish I had more to give.

The EBRI study reports that the amount of money spent on ENTERTAINMENT stays the same in the first few years of retirement and then declines with further aging. It starts out, they report, at about 9 percent of income.

I think it all depends on what you count as entertainment.

”How retirees choose to fill their new-found hours of leisure time can make a big difference in their retirement security. 'They can either spend this time on activities around the house that reduce overall spending, such as doing more home repairs yourself, preparing more meals at home, doing your own cleaning rather than getting someone else to do the cleaning, and going out and looking for deals and smart spending opportunities, or they could spend this time traveling or entertaining - and that takes money,' says Rohwedder. 'It very much depends on what people do with their newly gained time.'"

Cooking at home, house cleaning and DIY projects may or may not fall into a given person's idea of entertainment. In my case, “going out and looking for deals and smart spending opportunities” is a fairly close definition of hell. Aside from food, I despise shopping.

Some of us have a wider definition of entertainment that these survey folks: books, magazines, movies, television, blogging, classes, volunteering, gardening, etc. Some of these cost money, some don't. I suspect entertainment costs vary widely depending on definition and from person to person.

So I wonder how spending has changed for you in retirement. And if you are not retired, how you expect it to change. You can read the full EBRI report here [pdf] or a shorter overview from U.S. News here .

ADMINISTRIVIA: Some readers who have emailed a message or information to me may be waiting for a response. Thanks to a vicious spam blocking service called Spamcop, my responses are sometimes returned to me because your ISP uses this service to try to keep spam to a minimum.

It doesn't matter that I don't send spam. If too many others on the same email service I use are spamming, everyone is blocked (forever or shorter, but no way to know which) and the “service” pretty well refuses to remove anyone unfairly blocked.

So if you've been expecting an answer from me and have not received it after three or four days, I've probably received a refusal to deliver from Spamcop. Sorry, but I do not have the patience to try to undo this – reports all over the web say it's nearly impossible, as does my email provider.


At The Elder Storytelling Place today, Lia Hirtz: To Belong

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