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It’s not surprising that older people spend less money than their younger counterparts. That’s one of the obvious results of being retired and living off investments, fixed income, pensions and Social Security.
Of course, retirees have face other demands such as stretching income for as long as possible and long-term care, the latter of which is costly. With those factors and others in mind, it’s a good thing that data point to the fact that baby boomers and older folks being more likely to work with advisors.
After all, broadly speaking, folks that have been working for longer periods of time are likely to have more investable assets than those with less experience under their belts. Speaking of experience, life’s lessons often highlight the value of professional financial advice. Plus, as we age, our financial needs and objectives change. Whether it’s estate planning, retirement planning, long-term care or other issues, there are myriad reasons for older people to consider working with advisors.
For older folks, advisors can play pivotal in the budgeting/spending control process. In fact, older clients should be leaning on advisors for this type of advice because, with any luck, they’ll live long healthy lives. On the other hand, advisors need to understand the spending trends seen among older people and how factors, such as geography, figure into the equation.
Understanding the Trends
Data confirm older Americans reduce their spending. Consider the following.
“The older Americans get after their peak earning years, the less they tend to spend. How much less? The latest DepositAccounts study finds consumers 65 and older spend an average of 20.8% less annually than all consumers — $57,818 versus $72,967,” according to DepositAccounts, a unit of Lending Tree.
That $57,818 in annual spending by those 65 and older is really propped by those in the 65 to 74 cohort because those 75 and up spend an average of $53,481 per year. Translation: the older someone is, the more likely it is their spending declines.
“Why the slowdown in spending in the golden years? In some cases, it may be out of necessity, as income often takes a nosedive later in life. Average annual income drops from $105,498 among 55-to-64-year-olds to $60,359 among those 65 and older. Breaking that down further, it drops from an average of $68,059 among those 65 to 74 to an average of $49,392 among those 75 and older,” adds DepositAccounts.
Not surprisingly, the only category in which older Americans spend more than younger folks is healthcare. Entertainment, food and transportation expenditures are all lower in the 65+ crowd. That indicates many older folks are making efforts to rein in non-essential spending.
Geography Is Important, Too
Advisors and clients alike know that some states are simply more hospitable on a cost basis to retirees/older folks than others. Of course, not older people can move or want to move. Perhaps they’re comfortable where they’re at or grandchildren or other family ties making moving unappealing.
Predictably, high tax/cost of living states aren’t conducive to retirees looking to stretch their investments and limited income further. As noted by DepositAccounts, the five worst offenders on that front are, not surprisingly, Hawaii, California, New Jersey, Massachusetts and New York. Conversely, the South is home to some hospitable retirement destinations.
“Southern states dominate, with West Virginia the least expensive state in which to spend your retirement years. In the Mountain State, it takes $33,388 — 41.2% (or $23,369) less than in Hawaii (the most expensive state),” notes the research firm. “West Virginia is followed by Arkansas ($33,546) and Mississippi ($34,566). Alabama and Indiana (repping the Midwest) round out the bottom five, at $35,044 and $35,222, respectively.”
Related: Younger Demographics Winning Retirement Generational Divide