Change in Household Spending After Retirement: Results from a Longitudinal Sample

On average, households spend less once they retire—but not all households, and not in the same ways. New research from EBRI finds that while average spending in retirement falls in the first two years in retirement, nearly half of retired households actually spent more than they did just before retirement. That declines over time.

This study shows how household spending changed in the immediate years following retirement by analyzing the spending patterns of a fixed group of households up to six years after their retirement.
The data show that household spending dropped at the beginning of retirement. In the first two years of retirement, median household spending dropped by 5.5 percent from preretirement spending levels, and by12.5 percent by the third or fourth year of retirement. But the spending reduction slowed down after the fourth year.
Although average spending in retirement fell, a large percentage of households experienced higher spending following retirement. In the first two years of retirement, 45.9 percent of households spent more than what they had spent just before retirement. This declined to 33.4 percent by the sixth year of retirement.
Households that spent more in the first two years of retirement were not exclusively high-income households; rather they were distributed similarly across income levels.
In the first two years of retirement, 2 in 5 households (39.3 percent) spent less than 80 percent of their preretirement spending. By the sixth year of retirement, a majority (53.1 percent) of households did so.
In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their preretirement spending. By the sixth year of retirement 23.4 percent of households still did so.
A very small percentage of the household budget was spent on durable goods. The median household (half above and half below) spent nothing on durables in retirement.
Transportation spending showed the highest drop in the first two years of retirement. Median spending on transportation went down by 25.1 percent in the first two years of retirement, although the reduction in subsequent years was small.
The median household had a mortgage payment before retirement but none after retirement.

Change in Spending the me Figure spendi Spending Does Not Decrease for Everyone ? ng is no 3A, Ho dian Although no usehold Spen n-d t compara aver urabl age s e s ble pe p ding on ndin across waves. endin g gfor cou Dur in retir ables (i pe les For this ment dro n 201 fpe reaso sll, a by 3 $ 7 lar s) n .9 p in , Hurd ge the Years eper rcent et. centage of of t al. Surrou (201 heir ho prer 5) sug ndi useholds etirement spendin ng gRetirement, est in the RA experience by Preret ND CAMS gd . In higher contrast, irement Data spen singl ding es Sudipto Banerjee is a research associate at the Employee Benefit Research Institute (EBRI). This Issue Brief was Change in Household Spending After Retirement: Results Figure 3A Figure 3C experienc Documentatio following retir Income Quartile e a sn that teady “For r decl ement. I ine: ............................................................................................................... esearch In t n the he pur first t first tw pose ws o o years th that are years of r sen eiFigure 6B e r median Figure 1A Figure 5C Figure 8 tirem Figure 1C sitive to cha Figure 5A ent, non 45.-n 9 durable ges in s percent spe pen of households ndin ding drops 6.0 g at the ho spent mor useh percent, whic old l ....................... 11 ee th vel, an what h written with assistance from the Institute’s research an Figure 2B d Figure 4B editorial staffs. Any views expressed in this report are those of Although average spending goes down in retirement, that does not mean every household experiences a drop in from a Longitudinal Sample Household Spending on Non-Durables (in 2013 $s) Household Household Mortgage Spending Principal Pay Spending on Non-Durables on Housing ments (in 2013 $s) in (in 2013 (in 2013 $s) in the the $s) in the Years Years Years Total Household Spendi Distribution Total ng Household T Household otal of Those Who Household Spending Spending Spending Experienced an Increase in Spending in (in 2013 $s) in on Housing (in 2013 $s) in (in 2013 the Years the $s) in the Surrounding Years Years accelerat researchers sh they had es to a ould co 17. spent just b 5 perc nsider ent le i miting the dro fore retire Household Household p (from pr iment. r an eretirem alyses to CA Spending Spending By the sixt ent spendi on Durables MS Waves 2 on T h year rng ansportation of retir ) by th 005 o (in 2013 $s) in e e sixth y ment, nwar (in 2013 $s) this fel de.” ar o Fofr this l r to etirement. 33. reason, this report 4 percent. As noted earli uses er, most spendi the autng hor, a as th nd should ey enter r not etire be ascribed ment. For som to th ee officers, tr , expenses m ustees, or other spon ay not change at all,sors of EBRI, Em and for some they ploy m ee B ay even enefit incr Res ee aarch se. in the Years Surrounding Retirement Surrounding Retirement, by Preretirement Income Quartile Figure 3B, Household Spen Surrounding Retirement (Mortgage Surrounding Retirement, by ding on Non-Durables (in 2013 Preretirement $s) Principal in the Years Surro Pay Income ments unding R Quartile not Included), etirement, by Marital First T Surrounding Retirement (Mortgage Surrounding Retirement, by Retirement (Mortgage the Y in wo the Y ears eY ars of Retirement, by Preretirement Income Quartile ears Surrounding Surrounding Retirement, by Principal Retirement, Preretirement Pay Principal m by ents Marital Marital Income not PayIncluded) Status ments Status Quartile not Included) By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute of CAMS data the spen fro ding m 20 dec05 lin throu e in the gh si 20 x-13. year period occurs in the first four years of retirement. Institute-Education and Research Fund (EBRI-ERF), or their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions Figure Figure 1A sho 7 showw s the s thepercenta change in tota ge of ho l ho useho useh lds that old spen spent ding in t more he y in retir ears f eo ment tha llowing rn e they di tirement. Both d prereti av reerage ment. D anurin d mg e t dian he $35,000 November 2015 • No. 420 $ $60,0 50,00 00 0 (Mortgage Principal by Preretirement Income Quartile Payments not Included) $18,000 ? Households th Status ........................................................................................................................ 100% $7,000 at spent more in the first two years of retirement were not exclusively high-i............................ 11 ncome households, $12,000 first two on speci years fic poli of r cy pro $e 800 tirem posals. ent,EBRI invit 45.9 percent es coof households mment on this research. actually spent more than their preretirement levels. This (midpoint) spending levels are reported. The preretirement average and median household spending are $56,006 and $20,000 $90,000 Figure 3C sho but were ws how the av distributed s erage non imilarly acros -durable s incom spen e gro ding u ps changes by . income quartiles. For the bottom-income quartile, $45,000 Spending Categories number $46,452, resp goes ectively. A down $16,0 as 00 th fter ey move de one to tw ep o y er i ears of r nto retir ee tirem ment e: Af nt, th ter e aver three t agoe four drops years i to $5n1 retirem ,721 ane dnt, m the medi ore than an drops 2 in to 5 90% $30,000 Figure 3C, Household Spending on Non-Durables (in 2013 $s) in the Years Surrounding Retirement, by $ $6 18,0 $ ,0 700 00 00 there Introduction is a significant drop in the first two years of retirement (from $17,975 to $15,329), but the additional drops in the $50,000 $80,000 households The main spendin (41.5 g perc catent) s egories are pent more t define ha d as follo n their prereti ws: rement levels. After five to six years in retirement, 1 in 3 $43,901. So, in the $10,0 first 00 two years of retirement, average household spending drops by 7.7 percent and median $40,000 ? In the fi Preretirrst two years of reti ement Income Quartile rement, ................................................................................................. 2 in 5 households (39.3 percent) spent less than 80 percent of................ 12 their $14,000 subsequent years are small. In contrast, for the top-income quartile the decline in non-durable spending is gradual. Copyright Information: This report is copyrighted by the Employee Benefit Research Institute (EBRI). It may be Spending is one of the crucial economic factors in retirement, so it is very important to understand the spending 80% $16,000 households household spe (33.4 ndin perc g drops ent) s by 5.5 till spe pe nt mor rcent. e than The dec their line pr in e av retir erage emenhousehold spe t levels. But it is ndi n no gt necessarily continues in the case the follo that t wing years. he $600 $70,000 preretirement $25,000 spending. By the sixth year of retirement a majority (53.1 percent) of households did so. $5,000 used Change in Househol without permission $35,000 but citation of t d Spending After Retirement: Results he source is required. patterns ? Durable: of retired hous Sum of a eholl spen lds and th ding o e ca n us dura es that ble goods, drive the such a ir spsend refri ing gerator, behavior. washer/dryer Understan, d din ishwasher, g spendingtelevision, patterns not same households spent mor $12,000 e than their preretirement levels in all those years. By the sixth Figure 4A, Ho ye usehold Spending on Tr ar of retirement, averaa gn e h sportation ousehold spen (in 2013 $s) in the ding ($47,766Years Surrounding Retirem ) drops by 14.7 percent ane d median nt ........................ household 12 $40,000 $14,000 $8,000 Transportation 70% $60,000 computer. only will hel p current retirees succeed, but it will also help policymakers, employers, financial firms, and advisors assist $500 from a Longitudinal Sample spending ($39,888 $30,0 ) drops by 00 14.1 percent. ? In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their $20,000 Recommended Citation: Sudipto Banerjee, “Change in Household Spending After Retirement: Results from a $10,000 $ $4 12,0 ,000 00 A possible current Transportatio worke explanation nrs to have spending for t a s sho h uis could be tha w ccessful r s the highest etirement. t spen peop din le may g reduction i want ton splur the ge as th first two years ey enter retirem of retirement. ent by travelin This is exg or pect ed, Figure 4B, Household Spending on Transportation (in 2013 $s) in the Years Surrounding Retirement, by Marital $50,000 preretirement levels. By the sixth year of retirement 23.4 percent of households did so. 60% By Sudipt Longitudinalo Banerjee, Ph.D Sample, $400” EBRI Issue ., Empl Brief, nooyee Benefit Research Institute . 420, (Employee Benefit Research Institute, November 2015). $25,000 ? Non-Durable: $30,000 Sum of all spending on non-durable goods, such as gifts, clothing, charity, dining out, $6,000 spendi EBng on t RI Employe heir e Bhobbies. I enefit Reseafrc such h Instit spen ute Isdin sue B g w riefe (IS re a SNfunct 0887ion of ?137X) is incom publise, it mi hed mont ght hly by be the E expecte mployd ee B then at th efit R ose who esearch In spent stitute, since commuti But these re Status ........................................................................................................................ ductions slow ng to $10,00 an 0 d fr down a om work co fter the nstitutes the bulk fourth year of of transport retirement. Fo ation ex r exam peple, nses f byo the fo r most peo urth ypel............................ 15 e a. As show r of retirem n in ent Fi , gure $8,000 1100 13th St. N $ $15,0 40,0 W, S 0 00 0 uite 878, Washington, DC, 20005-405 49.5% 1, at $300 per year or is included as part of a membership subscription. Periodi- This report medication/m attempts to edical suppli qua es, utiliti ntify ho ew ho s, foo usehold spend d and beverage ing , healt changes in h insura thnce, te e imme lecomm diate years follo unications, t winig ck ret ets, trips an irement. d $3,000 more than 4A, avera average sg p 50 their pr e e % tr ndansportation ing eretir dropsement levels are c by spen 13.6 din perc g drops ent oo f from prer ncentrated at etirem $13,67 ent 1 th to $ sp een top o 10, din 745 g f t , (a he whi income 21. ch mea 4 perce distri ns the nt bution. drop additio ) i But nnal th as shown e dro firs pt two years o in th in e f Fi ifth gu t re 8, o f ? A very small $20,00 percenta 0 ge of the average household budget was spent on durable goods; the median household $300 cals postage rate paid in Washington, DC, and additional mailing offices. POSTMASTER: Send address changes to:45.4% EBRI Issue Brief, 1100 Report availability: $8,000 This report is available on the Internet at www.eb 45.8% ri.org vacations Banerjee (20 , per 1s 2onal care, , 2 $60 ,01 004) has s hobbi hown es, s that spe ports, hous ndinekee g decl pin ines g s for ervices retired and s houppl useholds as ies, yard th se ey age. Those age trends i rvices and supplies. n Figure 4C, Household Spending on Transportation (in 2013 $s) in the Years Surrounding Retirement, by 13th St. NW, Suite 878, Washington, DC, 20005-4051. Copyright 2015 by Employee Benefit Research Institute. All rights reserved. No. 420. that is not the case: the 41.3% percentage of households who spend more than their preretirement levels by preretirement retireme sixth year spent nt, w is ohile m nly 1. nothin $ $20,0 30,00 1 0 e 0 g 0di perce on durabl an trn ansportation tage es in points. retirem spen Similarly, for edin nt. g drops me from dian s $7, pen 193 din tg o, $5, the38 sp 7 en (a din 25 g.1 falls perc quickly ent deat firs cline) t a durin nd then g the $4,000 AT A GLAN CE $15,000 40% $10,000 spending have be $2 $6en , ,0 000 00derived from cross-sectional samples, but this study has used panel data to track the changes in Preretirement $200 Income Quartile ................................................................................................................. 15 income same per slows down. quarti iod. lThe e durin subse g th que e fi nt dro rst two years ps in tra n of retir sportation s ement. p endi The first-, ng are sec small. ond-, third-, and fourth-income quartiles spend $4,000 ? Transp $ ortati 20,000 on: Sum of all spending on up to three automobile purchases, vehicle insurance, vehicle retirement spending for a fixed group of households. ? Transportation accounted for the largest drop in spending during the first two years of retirement. Median 41.3 percent, 49.5 $10,0 p 00 ercent, 45.8 percent, and 45.4 percent more than their preretirement income, respectively. This $4,000 30% Table of Contents $ $2 10,0 $ ,0 100 0 00 0 maintenance, car payments or vehicle financing, and gasoline. Figure 5A, Household Spending on Housing (in 2013 $s) in the Years Surrounding Retirement (Mortgage Principal $5,000 ? This study sh $1 $2,,0 000 00 ows how household spending changed in the immediate years following retirement by Figure Figure 4B 1B sp an sho endi d w ng Figure $ s Fi 10,0 on t gur 00r4C sho e ans 1A p ortation by marital w the cha The Em went stat nges in tr do plo us. The gener wn yee by ansporta Benefi 25.1 t Research Institut perce al tren tion spendi nt i d o nf the first ang steady by marital e (EB two decl RI) was founded in 1978. Its years of reti ine stat over the first s us and incom rement,ie quart x years althom uiles, g i of r ssion is to h spe etin rement ding indicates that households that experience higher spending immediately following retirement are spread across the $2 $5, ,0 000 00 The standard economic model of life-cycle consumption predicts consumption smoothing over a person’s lifetime; in Introductio Payments n .................................................................................................................. not Included)..................................................................................................................... contribute to, to encourage, and to enhance the development of sound empl ........................................ 4 oyee ben...... 16 efit respectively. is present for analyzing the spending patterns I both co n all these upl gro es au nd s ps, the ingles main . For of a fixed group of finding of couples, the Figu median re 4Ahouseh (t hous hat there is eolds up to six y hold s a steep pending dro drop in t earps af s by ter their retir h 10. e fir3s perc t two years o ent ement. (from f cuts in subsequent years were small. entire income 20% distribution. $- ? Who we are Housing: S $- $-um of all spending on housing, including mortgage interest, rent, home/renters insurance, property Coupl programs and so e und public policy Single through objective Couple research and educati Sing on. EBR le I is the only other words, it predicts consumption Average is continuous thM rou ediag nh retirement and Adoes verage not drop. Howeve Medr, the ian evidence on Bottom Quartile Second Quartile Third Quartile Top Quartile $- $- Data .......................................................................................................................... $- $- ........................................... 4 retireme $54,626 to nt) still hol $48,982) in $- $- ds. As sh the fown i irst two ye n Figure ars 4C, th and by e top-in 16.0 pcome quartile ercent (from $ shows a stea 54,626 to $4dy decl 5,872) ine by th in tr e si ansportation xth year of Bottom Quartile Av Aver erag age e Second Quartile Third Quartile M Med edia ian n Top Quartile B Botto ottom Q m Qprivat ua uar rt tiille e e, nonprof Average it, nonpar S Sec econd ond Q Qtisan uar uarti tile le, Washington, DC-b T Thi hir rd Q d Qua ua ased organi r rti tile le Medzat ianion com T Top op Q Q m uar uar itted exclusivel ti tile le y to Av Co erupl age e MS ed ing ialn e taxes, home r Prer epair etirem an ent d maintenanc $33,783 e (supplies and servi $44,8ces). 95 $57,123 $83,147 Figure 5B, Household Spending on Housing (in 2013 $s) in the Years Surrounding Retirement (Mortgage Principal this is mix ? The data ed. Banks, Blu show that household spending dropped at ndell, and Tanner (1998) have shown that the beginning of retiremen British households reducte . In the first consumption two years precisely at of ? The median household had a mortgage payment before retirement but none after retirement. 10% Pr Pr Pr Pr Prer er er er eret et et et etiiiiir r r r rem em em em eme e e e en n n n nttttt $6 $6 ,28 925 $11,414 $8 $4 ,22 716 $10,9 $- 56 $9,070 $18,6 $- 08 Figures spendi retireme ng over 7 an nt. Fo Pr d er the six-year r singl 8 also sho etiremene ts, the w th r period in e at a significant spective $1 $17,9 ,1775 1 retirement. dro$2 ps are num 9,817 ber o 11.8 $2 $2 p f3,4 ,02 e ho r 85 7cus ent eholds s (from $2 pen 9,84 d more $2 $3 2 to 9,7 ,6330 4 in $2 retir 6,328 $2e 3,8 me ) a 81nt t nd 1 h9 an $4 $6 .0 4,4 ,06 perc before r 37 4 ent e(from tiremen t, Pr Prer eret etiirrem eme en ntt $15,3public 15 poli $56,0 cy r 06 esearch $8,20 and 7 education on econ $8o ,69m 6ic securi $46,4 ty52 and em$4 plo ,62y3ee benefit issues. Spending CaAf tegories ter 1 ?2 year ........................................................................................................... s $30,711 $40,165 $48,699 ................................... 5 $77,152 Payments not Included), by Marital Status ................................................................................................ 16 Af After ter 1 1 ? ?2 y 2 year ears s $6,251 $10,830 $7,263 $10,487 $7,800 $17,627 Af Af After ter ter 1 1 1 ? ? ?2 y 2 y 2 year ear ears s s $1 $5 ,14 360 $28,070 $1 $2 ,78 794 $2,80 $- 0 $22,378 $5,31 $- 9 the ages asso retirement, m Af After ciated wit ter 1 1 ? ?2 y 2 year ears seh dian household spending retirement. $15,329 Bern$5 heim, Ski 1,721 dropped by 5. nner, $22,5 an 22 d Wein 5 percent fr berg (20 $2 07,7 1) om preretirem 02 have shown $43,901 that U ent spending $42,8 .S. househo 95 levels, and lds also Af After ter 3 1 ? ?4 y 2 year ears s $1 $21,8 9,139 90 $3 $66,7 ,2949 7 $4 $56,3 ,8482 9 $7 $21,5 ,9318 3 EBRI’s membership includes a cross-section of pension funds; businesses; trade associations; although it is not clear how much more. Among those who spend less, it is also not clear how much less they spend in $29,842 to $24,153). So singles show slightly higher spending drops than couples in percentage terms. ? Total Spending: Sum of durable, non-durable, transportation and housing spending. Definition of Af Af Af Af Af Retirement ter ter ter ter ter 3 3 3 3 3 ? ? ? ? ?4 y 4 y 4 y 4 y 4 year ear ear ear ears s s s s and Sample S $4 $7 $5 ,99 58 152 elec $2 $9 tion 7,3 ,3724 7................................................................................. $1 $6 $2 ,15 ,02 530 2 $2 $9,14 ,$- 051 1 $2 $62,2 ,7586 4 $1 $45,6 ,83 $- 32 9 ........................ 5 Af After ter 3 3 ? ?4 y 4 year ears s $14,821 $48,384 $22,936 $28,094 $40,651 $39,024 0% After 3 ?4 years $11,546 $6,333 $5,595 $2,551 After 5 ?6 years $36,183 $33,731 $45,087 $66,603 labor unions; health care providers and insurers; government organizations; and service firms. reduce certain by12.5 percent by the thir components of consum d or fourth year of retire ption sharply following reti ment. But the rement. This ap spending reduction slowed down after parent contradiction between the life- Housing retirement. Fi Af Af Afgure 9 makes ter ter ter 5 5 5 ? ? ?6 y 6 y 6 year ear ear Botto s s s m Qua an attem rtile$4 $4 ,80 155 pt to addr $8,62 Second 6ess this. P Quart $6 $2 ile ,24 455 ost-retirement Third Quartile spen $8,$- din 722g is ex $6 pres ,167sed as Top $1 a Quartile 3,7 $- perce 90 ntage of Af Af After ter ter 5 5 5 ? ? ?6 y 6 y 6 year ear ears s s $1 $6 4,7 13 43 $24,885 $1 $6 9,5 04 48 $2 $15,9 ,5693 0 $19,737 $3 $47,0 ,7820 3 Af After ter 5 5 ? ?6 y 6 year ears s $47,766 $39,888 $10,123 $5,373 $6,510 $2,496 Figure 5C, Household Spending on Housing (in 2013 $s) in the Years Surrounding Retirement (Mortgage Principal Change in Spending ............................................................................................................................................... 6 References cycle model Figure 1C sho the fourth ye an wd m s Fie gur asure ar. e 1A d behavior by house is re hold fpreretir erred to as ement “th -incom e retire ement quarti cle os. The stea nsumption puzzl dy dro e.” p in retirement spending can preretir It is import ement ant to note spending an thatd hdivided into ousing and tot four ba al spe nds : nding les da s than ta do 80 not i per nclu cent of de mort preretir gageement s principal p paym ending ents (Ba. Mortga nd I); more ge The final set Source: Employ Source: Employ o Source: Employ f spendi ee ee ee ng is o Benefit R Benefit R Benefit R esearch n esear esearch housin ch Institute estimates from Institute estimates from Institute estimates from g, which, as not the He the alt He He halt alt e and hd h and and Retirement earlier, Retirement Retirement excl Study St Study ude udy (HRS) (HRS) (HRS) s and mortgag and and the th C the onsumption e C C onsumption onsumption e prin Activ cipal AA ities and M ctiv ctiv ities and ities and paym ail M M Surv ail en ail Surv Surv ey ts (C ey . Fig ey AM S), ure 5A Payments Source: Employ Source: Employ not ee ee Includ Benefit R Benefit Research esearch ed), by Preretir Institute estimates from Institute estimates ement from the the He Income Health alth and and Retirement Retirement Quartil St e Study udy ........................................................................ 17 (HRS) (HRS) and and th the e C Consumption onsumption AA ctiv ctivities ities and and Mail Survey Mail Survey Source: Employ Source: Employ Source: Employ Source: Employ ee ee ee ee Benefit R Benefit R Benefit R Benefit R esearch esear esearch esearch ch Institute estimates from Institute estimates from Institute estimates from Institute estimates from the He the the alt He He He halt alt alt and h hh and and and Retirement Retirement Retirement Retirement Study St St Study udy udy (HRS) (HRS) (HRS) (HRS) and and and and the th th C th onsumption e ee C C C onsumption onsumption onsumption Activ A A A ities and M ctiv ctiv ctiv ities and ities and ities and ail M M M Surv ail ail ail Surv Surv ey Surv (C ey ey ey AM S), Source: Employee Benefit Research Institute estimates from EBRI’s work advances knowledge and unders the Health and Retirement Study (HRS) and thtanding of emplo e Consumption Activities and yee benefits and their Mail Survey Aguila, Total Househo Emma, Orazio (C (C AM AM S), 2005 S), 2005 ld S ?p ? 2013. Attana 2013. ending sio, and Costas Meghir. ...................................................................................................... “Changes in consumption at retirement: Eviden ............................ 6 ce from panel be seen in a2005 lmo ?st all in 2013. come groups, although the bottom-income quartile shows an increase in spending after five to (C (C (C 2005 (CAMS), 2005 (C AM AM AM AM ? S), 2005 S), 2005 S), 2005 2013. S), 2005 ? ? ? ? 2013. ? 2013. 2013. 2013. 2013 principal payments can be considered as savings or investments. Building home equity can be considered as a savings than or equal (C AM to 80 S), 2005 p ?e 2013. rcent of preretirement spending but less than 100 percent of preretirement spending (Band II); shows the change in average and m importance to edian spendi the nation’s econo ng on housing, my whic among policy h declines stea makers, dily dur the news ing the media, and first six years o the public. It f On the ? other Although av hand, Agu erage spendin ila, Attanasio, and Meghir g in retirement fell, a l (2011) find that arge percentage non-durablof hou e conssum ehold ption s experienced remains uncha higher nged at six years o data.” fReview of retirement. Economics and Statistics, For the top-income quart 201 ile, 1, 93 hous (3 eh ), p old p s . 1 p09 endi 4-n 109 g drops 9. by 7.2 percent in the first two years Durables ........................................................................................................................................................... 6 more than goal by many, or equal and peopl to 10e 0 cpan choose ercentdoes this b of to i prern etirement vest in y conducting their spe ho ndin and p mes instea g but ublishing policy re less than d of ot 12 her 0 inves sear percch, analysis, ent of tments by preretir pay and ement s ing mor special reports on p een thdi an ng the Figure 6A, Mortgage Principal Payments (in 2013 $s) in the Years Surrounding Retirement ....................................... 17 retirement. Fo What we do r example, median spending on housing during the first two years of retirement drops from $9,070 to retiremespending foll nt, so they co owing retirem nclude that the ere nt. In the fir is no evidenc st two years e of a retireme of retiremen nt consumption t, 45.9 percent of hou puzzle. Hurd ans d ehold Rohw sedder spen t more employee benefit issues; holding educational briefings for EBRI members, congressional and after retirement (from $83,147 to $77,152) and 19.9 percent by the sixth year of retirement. required principal payments, so mortgage principal payments are excluded from the spending variables. All the (Ban Non-Dura d III); an bles d more than .................................................................................................................. or equal to 120 percent of preretirement spending (Band IV). .................................. 6 $7,800 (a 14.0 percent drop) and to $6,167 by the sixth year (a 32.0 percent drop). (20 Banerjee, 08) rthan wh eport Sudi small dec pto. “E at they had spen xpendit lines u in house re Pa t tterns o just bef hold cfo o Ol nsumption re retirement. Th der Americ ov ans, 2001 er retir is declined to 3 ement ?2009.” and ar EBRI Issue Brief, gue 3.4 percent b that these chan y no. 36 the sixth year of ges are 8 (Employe compatible e Benef it federal agency staff, and the news media; and sponsoring public opinion surveys on employee Figure 6B, Mortgage Principal Payments (in 2013 $s) in the Years Surrounding Retirement, by Preretirement Income spending amounts are expressed in 2013 dollars. Transportation ................................................................................................................................................... 9 benefit issues. EBRI’s Education and Research Fund (EBRI-ERF) performs the charitable, with t Research he retirement. life-c Insti ycle model. tute, 2012). This re port does not make any attempt to test the validity of the life-cycle model; rather, Durables Figure 9 shows that within the first two years of retirement, almost 2 in 5 households (39.3 percent) spend less than Quartile .................................................................................................................................................. 18 Figure 5B shows Figure 5A by marital status. For couples, the trend looks very much like the overall trends: A steady educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization Housing ....................................................................................................................... Figure 4C Figure 6A Figure 7 ..................................... 9 Figure 4A Figure 3B using more recent and higher-quality data, it documents Figure 2C Figure 9 Figure 2A the spending changes that U.S. households actually make in Figure 5B Figure 1B 80 percent of their preretirement levels. As they move deeper into retirement, more and more households enter Band I. supported by contributions and grants. Definit decli Figure ne 2A s in spe ion hon w of Retirement din s the g o avera n housing ge anduri d m and Sample Selection ng the edian first six changes years in durable of re s tirp een ment. din g But . As not spending by ed above, dur single abl s, e s wh pile still ending low cons er t ish tsan i of n Household Spending on Transportation (in 2013 $s) in the Years ? . Hou “How seh Does olds that sp Househo ent more in the first ld Expe Percentage Mortgage nditure Chan Principal Pay of Households ge two year with Age s of r for Ol me ents W tirement der hose Spending (in 2013 $s) Americans were not exclusi ?” EBRI Notes, vely high-income Vol. 35, no. 9 Household Household Spending Spending on Non-Durables on Transportation (in 2013 $s) Household Frequency Distribution of Post Retirement Spending Household Spending Spending on Durables on Durables (in 2013 $s) in (in 2013 $s) the Years Mortgage Principal Payment Household s ............................................................................................................................... Spending on Housing (in 2013 $s) in the Years Surrounding ... 9 the years Figure 7, Perc folloentage wing reti of reme Total Households Whos nt. Results Household clearly show that e Spending Spending Increased in t (in 2013 $s) in overall avera he Years gthe Years e and me Follo dia wing Surrounding n hous Retirem ehold e s ntp ........................... ending does decline 18 By the sixth year of retirement, a majority of households (53.1 percent) are in Band I. On the other side, in the first only fiv preretire ement, durable seems to goods—go and, a up a ppro little priatel bit ay, the m fter the first t edian wexp o years. enditure is zero both before and after retirement. The Surrounding Retirement, by Preretirement Income Quartile One of the problematic aspects of t in the (in 2013 $s) Increased hY e r ears in the eport Surrounding Retirement, by is the Y in the in the ears cate Surrounding Y Years ears Follow gorizatio Surrounding n ofi “retired hous Retirement ng Retirement Retirement Marital eholds.” Status There is no set definition for (Employe household e BeRetirement (Mortgage nefit s; rather th Researc Surrounding Retirement, by as a Percentage of Preretirement Spending (in 2013 ey were distributed h Institute, in the 20 Principal 14 Y ). ears similarly acr Surrounding Pay Preretirement ments oss inc not Retirement Included), by ome lev Income els. Quartile Marital $s) Status Retirement, by Marital Status (Mortgage Principal Payments not Included) in retirement, although some households experience increased spending as well. Spending Does Not Decrease for Everyone EBRI Issue Briefs ....................................................................................... is a monthly periodical with in-depth evaluation of employe..................... 13 e benefit issues two years of retirement 28.0 percent of households spend more than 120 percent of their preretirement levels (Band $16,000 average goes down in retirement, but by either measure, durables constitute a very small portion of total spending. 50% $40,000 a retired household an $25,0 60 0% 0 d retirement can be fluid. People can go back to work for pay, even after they have “retired.” $1 $4, ,0 000 00 Figure 8, Distribution of Those Who Experienced an Increase in Spending in First Two Years of Retirement, by $70,0 $700 00 and trends, as well as critical analyses of employee benefit policies and proposals. EBRI $14,000 Our IV). Figure But 5C sho the nu wmbers o s the chan f ho ge us in aver sehold go age down as th spendinge years on housing in re for different tirement go uin p. come quartiles. Nevertheless, aft Age ain r fi,ve or six years the findings are in Conclusion .......................................................................................................................................................... 13 Banks, James, ? In the first two year Richard Blundell a 45.9% s of retirement, 2 in nd Sarah Tanner. “Is Th 5 households ere a Ret (39.3 percen irement-Savit) spent less than 80 percent of their ngs Puzzle?” American Economic Review, The issue is compounded for couple households with both spouses working. Notes is a monthly periodical providing current information on a variety of employee benefit Preretirement Income Quartile ................................................................................................................. 19 $900 very similar to Figure 2B45 sho % w the overall $ s the durabl 14,000 tre ends sho spending ar wn in ound retirem Figure 5A: Th ent by e top-incom marital status. Again, e quartile experi thences th e median e mos for both t steady singldecl es ain nd e in retirement close to 1 $35,000 in 4 households (23.4 percent) are in Band IV. There are significant percentages of households in $3,500 topics. EBRIef is a weekly roundup of EBRI research and insights, as well as updates on Refer 199 ences preretirement 8, 88 (4), ............................................................................................................................... pp. 76 spending. By 9-788. the sixth year of retirement, a majority (53.1 percent) of hou ........................... 14 seholds did so. publications $60,000 $12,0 $600 00 Data 41.5% 50% surveys, studies, litigation, legislation and regulation affecting employee benefit plans, while the mi housing spen couples ddl is ze e tw rding. o o ban before Retir ds, and beut t me after r heir nt housin numb etirem g s ers epnt. Cou endi go do ng wn p dro les h as p th s f ave hi r ei om $1 r time gher 8,6 in aver reti 08 tage s rement o $17,6 pen 27 goes din in t g u than sin he p. Conse first two gles. que ye nt For both ars of r ly, a lot gro e of tirem ups the ent, With those concerns i $20,0 $800 00 n mind, this report defines retirement in the following way: Figure 9, Frequency Distribution of Post Retirement Spending as a Percentage of Preretirement Spending 40% Two sources of data ar $30,000 e used for this study. First is the Health and Retirement Study (HRS), which is a study of a $12,000 EBRI’s Blog supplements our regular publications, offering commentary on questions $3,000 and to s Bernh pendi ?e $ ng im, B. In the first two years 15,6 goes 3 Douglas, 2 dow and n i $1 n r Jona 3,79 etire 0 than Ski ,ment. respect of retirement, 28 nner ively, anby the d Steven .0 percent thir Wei d orn fourth berof g. household “What and fift Accounts for h or sixt s spent more th h year the s of ret Variation an 120 percent of their iremen in Retir t. ement Wealth households (46.9 percent) spend more than 80 percent of their preretirement levels even after five or six years in $50,000 (in 2013 $ $s) 10,000 ............................................................................................................................................ 19 $500 $700 received from news reporters, policymakers, and others. The EBRI Databook on Employee nationally representative sample of U.S. households with individuals over age 50. It is the most comprehensive survey ? For singles, their self-reported retirement status and date of retirement is used, provided they have worked for retirement, ev among U.S. preretirement spending. By en tho Households?” ugh the trend American Eco pred the sixth year of retiremen icts that t nomic Revi heir nuew mbers , 200go do 1, 91 (4), t 23.4 percen wn wit pp. 83 h more y t of hou 2-85e 7. ars spent seholds still did so. in retirement. 40% 35% Benefits is a statistical reference work on employee benefit programs and work force-related $25,000 33.4% $ $2 10,0 ,50 00 0 of older Americans in the nation and covers topics such as health, assets, income, and labor-force status in detail. It is Figure 2C shows the average spending on durables for different income quartiles (based on preretirement household $600 pay prior to $15,0 their stated 00 date of retirement; if they report going back to work for pay at any point after they $40,000 $8,000 issues. Figures $400 Mortgage Principal Payments a bi income). Hurd, Mic ennia ? A very small As l lo hael, m ngitudin ight and Susan be al survey percentage expect Roed, hwe with dura dde of question the household budget wa r. ble “Th speendi naire Retng ireme waves is hi nt gh in Consumption er for even hi -num s spent on durable good gher ber -i Puzzl ncome ed y e: Actu ears begi groups al Spen . Dura nnins. g in din ble The median household g 1 C s 9h p 9a e 2n n . Th ge ding in e i b Pan nitial roadly e sample l D g ata.” oes “retire, 30% ” they are dropped from the sample at that point. $20,000 $500 $2,000 $8,000 Fig Although ure 1A, this Tot report al Househol does d noSpen t cons din ider g (in m 2 ortgage 013 $s) in princi the pal Years Surrou payments as n s din pen g Retirem ding (hence ent (Mortga those pgae yments Principal are Pay nom t ents 30% consisted of individuals born between 1931 and 1941 and their spouses, regardless of their birth year. Newer cohorts down N for BER W (half abov all in orking Pape come gro $30,0 e and half below) spent n 00 ups r No. 13 as hous 929, ehol 2008. ds enter othi reti ng on durables in retiremen rement, although there are sli t. ght increases in the fifth or sixth Conclusion Contact EBRI Publications, (202) 659-0670; fax publication orders to (202) 775-6312. $6,000 $300 ? For couple households, if only one spouse reports working then the definition is the same as single households. not Included) ............................................................................................................................................ 7 included in 25 ho % using or $400 total spending) for the reasons mentioned above, some people may still view the payments as Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a $ $10,0 15,00 00 0 have years of r been e a tirement for dded in the the follbottom owing years. half ofThe the i study is ncome sponsore distribution. d by the National Institute on Aging (NIA) and the Social A person’s financial succ $1,500 ess of retirement depends on two key components—savings accumulated during working Orders/ $6,000 However, if both spouses r$199 annual sub eport working,s cription then th to e highe EBRI Not r earn es er is and call EBRI Issue ed the Brie primar fs. Change of y worker and t Address: he sel EBRI, f- Hurd, Mic an ex ? pe Tran nse, si hael, sport nce th Susann ation spending showed th ey hav Rohw e to wr edder, Joan ite a ch na ec Carroll, k every mo e highest drop in Joshu nth a Mallett, to th th eir mort e first t Colleen Mc gage wo le years Cullou nder. C of retir gh. RA onseque ement. ND CAMS Data ntly, i Medi t woul an spending o d help to n $20,000 Security Administration (SS $4,000 A) and administered by the Institute for Social Research (ISR) at the University of Michigan. $20 300 % years, and spendin $200 g during retirement years. Quantifying these two components and the underlying behavior patterns 20% 1100 13th St. NW, Suite 878, Washington, DC, 20005-4051, (202) 659-0670; fax number, Figure 1B, Total Household Spending (in 2013 $s) in the Years Surrounding Retirement, by Marital Status (Mortgage $10,000 reported retirement status of the primary worker is used, provided he/she has worked for pay prior to know ho Documentatio Subscriptions transp w much house ortation went down by 25.1 percent in the first n, 2015, holds V with ersio a mort n D, Rel gage ease are 2, p. payin 11. g down in two ye mortgage ars of r princi etirement pal (and ther , although the re efore gaining duction in in equity) Non-Durables $1,000 The labor-force status of the respondents is used from HRS for this report. $4,000 (202) 775-6312; e-mail: subscriptions@ebri.org Membership Information: Inquiries is essential to understanding how people are likely to succeed in retirement. This report focuses on spending in Principal Payments not Included) ............................................................................................................... 7 $200 retirement. If the primary worker reports going back to work at any time after he or she “retires,” then the $10,000 in retirement. subsequ $5 ent y $2 ,0 ,0 00 00ears was small. regarding EBRI membership and/or contributions to EBRI-ERF should be directed to EBRI 15% $100 Non-durables constitute the bulk of the spending and the declines in this category are in line with the decline in total retirement by document $5,000 ing how household spending changes in the years immediately following retirement and 10% household is $500dropped from the sample at that point. The other source of data is the Consum President Dallas ption and Activi Salisbur tiyes Mail at the above Survey address, ( (CAMS 202) 659-0670; ), which wase-mail: started salisbur in 20y@ebri.org 01 as a $100 $2,000 spendi Fig analyzin ure ng—a 1C, g the Tot lthough s ap l Househol endi slightly ng patt d higher erns Spen of din in a g per fix (in e 2 d c grou entage terms. 013 $s) in p of ho th ue sFor eholds Years Surrou example, up to s n as shown ix years ding Retirem afin ter Fi their egure nt, by retir 3A, Prereti in t eme hnt. rement e first two y Incom eae rs of $- Figure ? 6A s The medi hows the an household had $- average and media a mortgag n mortgage e payment be principal payment fore retirement s around retir but none af ement a ter retirement. nd that average principal 10% supplement to the HRS. From the participants in the 2000 HRS, 5,000 households were selected at random and mailed Average Median Average Median $- Average Median Average Median $- retirement, m Quartile (Mort edian $- non g-age Pri durable n spen cipal Payments ding goes do not wn Included by 6.3 .................................................................................... percent (from $23,881 to $22,378). By the sixth year of 8 Editorial Board: Dallas L. Salisbur Av y, er publisher age ; Stephen Blakely Med , editor ian . Any views expresA sed in this p verage ublication and th M ose o edianf the authors should The study uses CAMS dat $- a for the years 2Av 005, erag 2 e 007, 2009, 2011, and 2013. Households have Median to be observed at least payments go down in retir $- ement. But th Bottom Quartile e chang Couple e i Sn me econd Q dian uartile principal payments Third Quar tiaro le und retirem Single Te op n Q t is more uartile interesting: Couple Single Average Median the CAMS questionnaire. In couple households, the questionnaire was sent randomly to one of the two spouses. Since $- Bottom Quartile Second Quartile Third Quartile Top Quartile not be ascribed to the officers, 0% trustees, members, or Couple other sponsors of the Employee Benefit Research SingInstitute, the EBRI Educ le ation and Major findings inclu Preretiremede: nt $618 $- Average Median Pr Prer eret etiir rem eme en ntt $63,674 $54,626 $36,085 $29,842 retirement, m 5% Pre erdian etirem non ent -durable $1 <80% spen $3 2,3 7888 ding is down 1 >=87 0% $1 .4 $5 0,1 & <100 48 perce 25 %nt (from $23, >=100% & 88 $8 $5,53 85 1 to <12 5 0% $19,737), and av >$6 =1 $8,77 20% 94 erage 5 non-durable Preretirement $3,402 $2,198 once before retirement, so only households that retired in 2006 or after are included in the sample. Their preretirement Preretirement $8,052 $10,717 $14,646 $19,488 The median payment on mortgage principal is $2,198 preretirement, but drops to zero after retirement. There has been Research Fund, Preret or irem their ent staffs. Nothin $34,5 g her 30 ein is to be construed as an attem $27,055 pt to aid or hinder $19,3 the adoption 60 of any pending le $15,816 gislation, regulation, After 1 ?2 years $483 $- 2001, CAMS h Prer as bee etiremenn t conducted every tw$1 o years, w 3,671 ith 2013 the latest round of available $7,193 data. CAMS contains detailed After 1 ?2 years $58,133 $48,982 $31,886 $26,328 Af Af Af ter 1-2 ter ter 1 1 ? ? 2 y 2 y Years ear ear ss 3 $1 $3 9.1,2 3% 0649 1 $8 $3 5.,1% 55 145 1 $7 $4 7.,26 7% 371 2 $4 $7 8.,76 0% 864 Figure 2A, Household Spending on Durables (in 2013 $s) in the Years Surrounding Retirement ................................... 8 After 1 ?2 years $2,912 $- spending is do After wn 1 ?2 y 16.5 ears percent (from $5,368 $29,817 to $24,8 $8,84 85 4). $10,464 $16,753 After 1 ?2 years $31,304 $25,085 $17,748 $14,872 spendi or interpretative ng corresponds to rule, or as th legal, e last ho accounting, use actuarial, o hold spern other such prof ding observessional advice. ed before thww e house w.ebri. ho org ld was deemed retired. Post- Af After ter 3 1 ? ?2 y 4 year ears s $1 $4 0,7 07 45 $5$- ,387 a lot of resear After ch to 3 ?4 year determ s ine the factors $54,870 that determin $45,8 e th 41 e timing of retirement, an $29,367 d the most im $24,6portant o 43 nes being Af After 3-4 ter 3 ?4 y Years ears 4$1 4.1% 66 1$3 4.4% 00 1 $4 6.94 1% 2 $5 5.85 4% After 3 ?4 years $9,954 $7,092 $6,962 $5,692 household spe ? Household spendi After n 3 din ?4 y g ear in sforma ng dro tion. T ppe his d at study uses the the $2 be ,392ginning of RAND retir version o ement. Me f the CA dian household spe MS, which combines t $- nding droppe he data across d 5.5 percent all 0%After 3 ?4 years $5,513 $8,166 $9,972 $15,528 After 3 ?4 years $30,998 $25,868 $17,729 $13,546 After 5 ?6 years $408 $- After 3 ?4 years $10,231 $5,268 Af After ter 5 5 ? ?6 y 6 year ears s $51,846 $45,872 $31,944 $24,153 Af Af ter 5-6 ter 5 ?6 y Years ears 5$9 $2 3.1% ,72 709 1 $6 $3 3.,4% 47 312 1 $7 $3 0.,83 0% 348 2 $5 $5 3.,96 4% 602 retirement ho Afuseholds a ter 5 ?6 years re observed after one to two years, three to four years, and five to six years. Also, if the marital After 1 ?2 Years $2,013 After 3 ?4 Years $-After 5 ?6 Years eligibility for S After ocial S 5 ?6 year escurity bene $9fits, Me ,089 dicare, and a$7 n ,17 em 8 ployer pension or r $9,49 etireme 7 nt savings. $1 Fi 3,7 gure 87 6A suggests that Figure 2B, Household Spending on After 5 ?6 years $29,5 Dur 49 ables (in 2013 $2$s 4,9) in the Years 13 Surrounding $15,543 Retirement ................................. $13,053 10 survey years i of preretir nto a ement spending user-friendly format a in the first t nd is easier wo years of r to use efor lo tirement an ngitudina d 12. l an 5 perc alysis. ent by the third or fourth year, after AfEBR ter 5 ? I Issu 6 yeare sBrief is registered in the U. $1S. 0,0 Patent and T 42 rademark Office. ISSN: 0887 ?137X/90 $4 0887 ,668 ?137X/90 $ .50+.50 Figure 3B presents Figure 3A by marital status. Average non-durable spending goes down for both singles and couples, status of any household changes after retirement then the household is dropped from the sample at that point, getting out of Source: Employ mortgage ee d Benefit R ebt could esearch Institute estimates from be predictor oHe f ret alth ire andment timi Retirement Stng: udy (HRS) Many hous and the Consumption eholdsA pay ctivities and M off th ail e Surv ir mortga ey (CAMS), ge when Source: Employee Benefit Research Institute estimates from the Health and Retirement Study (HRS) and the Consumption Activities and Mail Survey which Source: Employ Source: Employ the decl ee ee ine slo Benefit R Benefit Research esearch wed do Institute estimates from Institute wn. estimates from the the He Health alth and and Retirement Retirement St Study udy (HRS) (HRS) and and th the e C Consumption onsumption AA ctiv ctivities ities and and Mail Survey Mail Survey Source: Employ Source: Employ Source: Employ Source: Employ ee ee ee ee Benefit R Benefit R Benefit R Benefit R esearch esearch esear esearch ch Institute estimates from Institute estimates from Institute estimates from Institute estimates from the the He the He alt He He alt halt alt and hh and h and and Retirement Retirement Retirement Retirement St udy St St udy St udy udy (HRS) (HRS) (HRS) (HRS) and and and and th eth th C th ee onsumption C e C onsumption C onsumption onsumption Activ AA ctiv A ities and M ctiv ctiv ities and ities and ities and aM il M ail Surv M ail ail Surv Surv ey Surv ey (C ey ey AM S), Source: Employ Source: Employee ee Benefit R Benefit Research esearch Institute estimates from Institute estimates from the Healt Hehalt and h and Retirement Retirement Study Study (HRS) (HRS) and and the th Ce onsumption Consumption Activ Aities and M ctivities and ail M Surv ail Surv ey (C eyAM S), but there is one clear difference between the two groups: For couples there is a significant drop in median spending in 2005 ?2013. (CAMS), 2005 ?2013. (CAMS), 2005 ?2013. (CAMS), 2005 (C 2005 (C AM AM ? S), 2005 2013. S), 2005 ? ? 2013. 2013. ?2013. because cha (C (C 2005 n AM AM ging marita ? S), 2005 S), 2005 2013. ? ?2013. 2013. l status can affect the spending levels of the household. This method allows the same group of Figure Hurd an 2C, Ho d Rohusehold Spen wedder (2008) also ding onuse Durdat ables (i a from t n 201 he firs 3 $st th ) inree the Years rounds Surrou (2001, n20 ding 03 Retirement, and 2005) oby Preret f CAMS for irement their study. they retire. Figure 6B shows the change in average principal payments by income quartiles. Payments go down for all the first two years of © 2015, Emplo retirement yee B (7.3 enefit per Research Institute cent), at which poi ?Educ nt th ation and Re e decline almost stops. By th search Fund. All rights re e sixtse h year rved. of r etirement households to be analyzed over time (longitudinally), which is a major advantage of the data. Income Quartile ...................................................................................................................................... 10 However, CAM income groups as househol S 2001 and 20 ds move i 03 has fn eto r wer espendi tirement. ng cate Not gori surprisin es thg an t ly, payments he later survey are high years, and as er for higher-i a result, tota ncome groups. l ebri.org ebri.org ebri.org A monthl ebri.org ebri.org ebri.org ebri.org ebri.org ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November ebri.org Issue Brief • November Issue Bri Issue Bri Issue Bri Issue Bri Issue Bri Issue Bri Issue Bri Issue Bri y research report f e e e e e e e effffffff • November • November • November • November • November • November • November • November rom th2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 e EBRI Education and Re 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 2015 • No. 420 search Fund © 2 015 Em ployee Benefit Research Institute 10 11 16 15 12 17 19 18 8 7 14 13 2 9 3 4 5 6