Overall spending during retirement decreases with age: EBRI
By Paul Wilson
ProWEB Wire (Industry News)
Traditional retirement planning exercises often don’t accurately measure the amount of income required during retirement, according to a new study from Employee Benefits Research Institute (EBRI).
Because spending habits change during retirement, simply examining income doesn’t provide an accurate look at requirements for retirement. For example, retirees no longer pay FICA taxes, save for retirement or pay for work-related expenses such as clothing and transportation, the study said.
The median income for retired households is 57 percent that of working households, yet retired households sped approximately 80 percent of what working households spend. In affluent households that have been able to save for retirement, the funds are used to make up the difference between income and spending, EBRI said.
The study found that overall spending in retirement decreases with age, largely due to waning health.
"The main reason is that health deteriorates with age, and that means people can't necessarily do all the things they planned," said Sudipto Banerjee, author of the report. "Discretionary spending on things like vacations and entertainment fall."
The two largest expenditures during retirement are housing and health care, the study found.
Health spending accounted for between 9 percent and 11 percent of expenditure for all income groups, but health care spending increase with age. Those between the ages of 50 and 64 spend 9 percent of their total budget on health items in 2009, while such items accounted for 18 percent among those 85 or older, according to EBRI.