How Are Seniors Spending Their Money in Retirement

Today’s seniors are spending more on hobbies and non-essentials such as entertainment, pets and hobbies, than they did in 1990.


by David Liebenson

Source: Spectrem’s Millionaire Corner

Are baby boomers financially ready for retirement? A new study finds seniors are currently carrying more debt into retirement than previous generations and wonders whether these retirees will be able to make ends meet throughout the rest of their lives.

Expenditures for today’s seniors have generally grown less than 1 percent per year, but the allocation of spending on goods and services has changed significantly, according to the recent study by the National Center for Policy Analysis. For example, data from the Federal Reserve Survey of Consumer Finances finds that since 1989, the percentage of 65-74 year-olds reporting a mortgage or home equity loan payment has increased from 21 percent to nearly 37 percent in 2010. For seniors 75 years and up, the percentage of mortgage or home equity loan holders increased from just 6 percent to 21 percent during the same period.

Interest payments in 2012 were 4.3 percent of overall expenditures for seniors, up from 2.7 percent of expenditures in 1990. Considering that mortgage interest rates have been at an all-time low, “this expenditure represents a small but troubling share,” the NCPA report states. Overall housing expenses, too (including maintenance, property taxes, insurance and mortgage interest) are the largest category of expenditures for seniors, comprising 32.8 percent of expenditures for 54-74 year-olds, and 36.7 percent for those at least 75 years-old.

While health care costs are substantial and the primary retirement concern of even high net worth households (according to a recent Spectrem’s Millionaire Corner survey), this is the fourth category of spending for seniors (11.4 percent of expenditures) and the second for those age 75 and up (14.7 percent). These expenditures include out-of-pocket costs for doctor visits, treatments and lab tests, medical equipment, prescription and over-the-counter drugs and supplemental insurance premiums. Total health care expenditures only increased slightly, from 14.4 percent of expenditures in 1990 to 14.7 percent in 2012.

It is perhaps a reflection of the baby boomer ethos of keeping engaged and remaining vital during retirement, the NCPA reports finds that they are spending more on hobbies and non-essentials than they did in 1990. For 65-74 year-olds, two of the five fastest-growing expenditures categories are miscellaneous entertainment and pets and hobbies. Similarly, the fastest-growing expenditure category for 65-74 year-olds is education.

These retirees literally want to stay in the driver’s seat. Seniors are driving longer, and both baby boomers and seniors report a growth in new and used car and truck expenditures.

The report cautions of a financially perilous retirement brought on by increases in discretionary and recreational purchases coupled with increased debt in the form of mortgages and credit cards and decreased opportunities for guaranteed income such as company pensions.