Planning Ahead: Consumer Expenditure Patterns in Retirement: The `Graying' of the Population Creates a Need to Examine the Role That Retirement Plays on Expenditure Decisions of Various Demographic Groups of Retirees. (Expenditures in Retirement)
Paulin, Geoffrey D., Duly, AbL., Monthly Labor Review
The fastest growing segment of the U. S. population is composed of those aged 65 and older. The Bureau of the Census reported that in 1994, 1 in 8 Americans was in this age group, but projects that the ratio may be as high as 1 in 5 by 2050. Furthermore, with increases in life expectancy, today's adults will live an average of 17 additional years after reaching age 65. (1)
As this demographic pattern shifts, an increasing demand for research and data on the older population--specifically, on retired persons and their roles on consumers--is constantly in evidence: "baby boomers," "privatization of Social Security," "Medicare," and tips on financial planning are common topics of the daily print and video media. The sheer growth in numbers suggests that the spending patterns of this older population will also play an increasingly important role in the future economy, an assumption supported by recent trends in expenditure levels. A study of real (that is, inflation-adjusted) expenditures from 1984 to 1997 finds that "spending by older consumers has risen from 12.6 percent to 14.6 percent of all consumer spending." (2)
In addition to the concerns these issues may raise for policymakers, especially those involved with providing adequate care and protection for older consumers, the decision to retire has major implications for individuals and families. Understanding differences in spending patterns for preretired and retired consumers can help workers plan for the future.
Taken together, these items suggest that a study of expenditure patterns of retirees is warranted. Differences in expenditure patterns for preretirees and retirees are expected for many reasons. For example, income presumably will decline upon retirement. Given the relationship of income to expenditures, it is important to see how income differs--in level as well as in sources of receipt. Also, other demographic characteristics presumably play an important role in expenditure decisions, both before and after retirement. Therefore, examining the role these characteristics play is also important. In looking at spending patterns for families who are near retirement and comparing them with the patterns of those individuals who have actually exited from the workforce, this article provides valuable information about the impact of retirement on consumer spending.
Several issues are addressed here. First, background describing related research is presented. Second, data from the U.S. Consumer Expenditure Survey, which provide the basis for the analysis, are described. Third, demographic characteristics of "preretired" and "retired" consumers in this sample are presented and compared. Fourth, income and expenditure patterns are described for these groups. Finally, regression analysis is used to explore differences in expenditure patterns given that demographics and income levels are different for preretired and retired consumers. (Logit and ordinary least squares results for the two groups are presented in a detailed appendix.)
Many previous studies related to the population aged 65 and older can be divided into two groups: those that focus on age, and those that focus on retirement. Both groups are important, and both have contributed to the analyses presented here.
Expenditure patterns by age. Rose Rubin and Kenneth Koelin examine how elderly households spend on necessities, compared with nonelderly households. (3) Using data from the 1980-81 and 1989-90 Consumer Expenditure Survey, they examine expenditures for housing, food at home, and healthcare, as well as income, demographics, and receipt of cash assistance (AFDC or SSI). The methodology used to examine the relationship between their variables of interest is based on the life cycle theory of consumption, with total expenditures acting as a proxy for permanent income. Rubin and Koelin's results indicate that, in general, older consumers spend a higher proportion of their budget on housing and healthcare than do the nonelderly, and that the receipt of financial assistance does play a role in the spending decisions of both age groups. …