In earlier blogs I have talked about income adequacy in later life and also about differences within the older age groups – how lumping everyone aged 65 plus together can obscure diversity among older people.
A few years ago I used data from Statistics New Zealand’s Household Economic Survey in some work I did for the Retirement Commission and Age Concern NZ. This gave me expenditure data for single people and for couples, with breakdowns by age between the 65-74 and 75 plus groups. I also used some Australian Bureau of Statistics figures from their Household Expenditure Survey, because this included differences by gender.
These and most other surveys show that, overall, expenditure tends to fall with age.
My conclusions are tentative because there are differences in the dates of the surveys, in the categories of expenditure used and probably other aspects of methodology. The actual figures will change over time, so I am just looking at trends. Do they seem plausible to you?
Comparing the 65-74 and 75 plus groups shows that, for couples, spending on housing, household goods and services, and especially on transport and leisure decreases with age in both Australia and NZ. There was a decline in spending on food in Australia, but not in NZ.
For single people, expenditure on food decreases with age in both countries. The Australian data also shows decreased spending by singles on the other main categories, similar to the pattern for couples. But there was no decrease in leisure spending for NZ singles.
There were increases in spending by single women on transport and household goods and services across the two age groups. There was a decrease in spending for males on housing, but not for females.
Why should spending on food decrease with age? What about spending on leisure activities? And on housing? And why should total expenditure fall with age?
Perhaps, once people are retired, they are able to do more work for themselves (termed ‘home production’), such as gardening and home maintenance, to offset spending on food and professional services. They also have more time to “shop around” for bargains and “specials”. On the other hand, the very old may need more day-to-day assistance in their homes and they may have to pay for these services.
If older people are less active, their need for food and food consumption may decrease. If they have health or mobility restrictions they may be less likely to spend on holidays. Leisure spending appears to decrease with age, but there are differences by household type. The studies suggest that older couples eat more meals at home, whereas single people spend more on meals out, which may be linked to their needs for social contact.
It seems well recognised that very old people have high health costs. But health spending is greatly influenced by the extent of public sector subsidies (which make it difficult to make international comparisons). The data indicates that health spending generally increases with age, but there may be cohort-based preferences in terms of using alternative medicines and therapies, which people have to fund themselves. One writer on the subject suggests that older people should put a reasonable sum in their annual budgets for major medical procedures, assuming that these are paid for out of private funds. Setting aside money in this way may be a rational alternative to medical insurance.
What about housing costs? There seems no reason for them to reduce with age, assuming that people remain in owner-occupation. Insurance, rates, repair and maintenance costs do not fall with age, unless people move into smaller accommodation. Women over 75 in New Zealand spend more on household goods and services than their male counterparts. Is it because many have lost their in-house handyman?
Energy costs may increase with age if houses are to be comfortable and healthy for older people who stay at home more. But we have all heard about people who stint on heating.
Should we expect very old people to spend less on clothing and footwear? Don’t they have just as much right to be smart and fashionable in their dress as anyone else? In my experience, the concept of “Sunday best” is still alive and well. Similarly, 90 year olds require good communication systems, even if they have not moved on from standard telephones. Oncoming cohorts are likely to be greater users of digital technology in all its forms.
Transport is closely linked to meeting everyday needs and maintaining social participation. Whereas very old people may have lower levels of car use, spending on taxis may increase. I will have more to say about coping without a car in another blog.
It seems that needs and preferences are the main factors to explain expenditure patterns and we should not expect everyone to be the same. Needs and preferences may change as different cohorts move into old age. For example, older men spend more on transport than older women and most of this relates to using a private car. More women in on-coming cohorts are drivers and this may change patterns of transport use and spending.
Expenditure is clearly limited by income and perhaps people spend less as they age because their income falls and their assets are depleted. But, on the other hand, assuming that people are not concerned about bequests, they may use up more of their income and wealth and be less keen on saving as their remaining life span grows shorter. Using up your money before you die may be the economically rational response – there are no roof-racks on hearses – but it does not seem to be borne out by actual behaviour. Many people are still waiting for that “rainy day” to arrive right up to the end of their lives.
Pingback: Wealthfront Review
Pingback: Wealthfront Review - Dr. Piggy Bank
I go along with the comments of Alan above. When I first retired I seemed to have adequate resources but all in the space of a few months the computer packed up, the car became expensive, I got health problems so Doctors visits and medicines bcame expensive, savings bacame depleted, may need to sell my home but doubt that I could afford something reasonable in today’s housing market, electricity prices are frightening,
along with increases in house insurance. Ends are just not meeting any more…I don’t drink or gamble or buy clothes and the age of 80 looms this year! Perhaps the answer is
stop living so long!
Living longer surely beats the alternative! At least while healthy.
ACNZ Research on aging and expenditure.
Income adequacy varies across say ten year cycles.
On first retiring income is adequate. House fully maintained, home appliances
recently replaced or not very old, clothing fairly new – wardrobe well stacked- well
ordered lives, reasonably modern car, and physical condition generally good but warning signs appearing. Savings are pretty well intact. In fact life is looking rosy and some indulgences are possible. Holidaying in motel/hotels rather than camping. New hobbies, recreational activities and togetherness time with the need for equipment, club fees incidental expenses etc. cut into income/budgeted savings.
Going through that decade and into the next the spending emphasis changes, budgeted income and possibly savings being depleted through increasing health demands,
household expenses – local body rates, house maintenance no longer D.I.Y., rising fuel costs petrol/ electricity, club fees, postage, replacement clothes needed because of change in body shape, C.P.I. and superannuation adjustments do not match cost of living increases.
Some balance is obtained from lower food demand, more opportunities for gardening, less entertaining and meals out/socializing.
Increasing property valuations affect local body rates although Rate Rebate Scheme MAY ease the problem but low ‘allowance’ threshold may mitigate against this.
Insurances of all kind are increasing faster than the C.of.L.
The next decade is probably the most depressing when what was once affordable is demoted to manageable and then onto questionable.
Those people who have lived through a depression, financial failure or orphaned are in many ways better than those who have enjoyed many years of the ‘good life’.
They have at least have already experienced the need to make much out of a little, not that they will enjoy the deja vue of going through it again.
Running through all the trials and tribulations of daily living in retirement is the constant nagging thought that for a married couple, if one partner dies then the household income is reduced by approximately 40%. Loss of income and loss of a partner is a double calamity blessed not contemplated.
I apologise if this is not in your preferred format but it is the one that appealed to me.
This made sense, but I learnt nothing new
Your article confirms my hunch that analysis is impossible. The younger we are, the more our life requirements are defined by our culture and our peers. Conformity is required. Classifications are possible and may be essential. Old age brings freedom from pressures and defies the sociologist. Fears dissipate, ambitions vanish, sufficient for the day is the goodness thereof. It would be nice if someone helps us in our hour of need but the end will come regardless.of wealth or influence and we will be equal.
Before retirement after 51 years of the building trade my body started to cause problems. Crushed veritibrae, osteoporosis, peripheral neuropathy, joint failures and increasing pain. Lost 12kg by 67 and both hips had been replaced by 68 and we were ready to go on an overseas adventure. All this meant that by 70 we had had a few very expensive years, then my wife developed Breast cancer so by 75 we had slowed down and our expenses were less. Inflation while touted as being less than 3% is considerably more than that in our everyday expenditure. Getting to use the Gold Card for public transport has been a real blessing. Especially in house maintenance and travel. Once we are unable to do our own house painting and maintenance then expenses are really going to mount. We are seeing this in the case of our sister in her early 80’s who is living alone in her own home.
I go to town less in winter, certainly try not to go out at night in winter, in summer it is all on. Any invitation is taken up.
Garden and run my farm during the day, try to make trips to town only once a week, shop carefully, don’t need to by many new clothes. I buy good and often expensive clothes and they tend to last longer. Use Warehouse gear around the farm,
I don’t think that it costs less as we get older because although groceries have remained in line with inflation rates,electricty,house repairs and anything connected with building have increased way above the increase in inflation.