Richard Johnson, co-author of the study, says the typical retired couple devotes 29 percent of their money on housing, 20 percent on health care, 13 percent on food, 2 percent on clothing, 12 percent on transportation, 10 percent on entertainment, 10 percent on gifts, and 4 percent on other things. Also of note, the typical married couple ages 65 and older spend 84 percent of their after-tax household income.
The big expense (after housing) in retirement is health care - insurance premiums, drugs, health services, and medical supplies. Retirees on average spend 8 percent of their income on health-insurance premiums, 6 percent on prescription drugs, 4 percent on health services, and 1 percent on medical supplies, Johnson says.
This study uses data from the Health and Retirement Study (HRS), including a recently released supplemental survey, the Consumption and Activities Mail Survey (CAMS), to analyze expenditure patterns and consumption needs at older ages.
Key findings include the following: ·
- Typical married adults ages 65 and older devote 29 percent of their household expenditures to housing and another 20 percent to health care.
- For typical older non-married adults, housing expenses consume 39 percent of total spending and health care costs consume 16 percent.
Given the attention paid to the burden of health care costs at older ages, it is somewhat surprising that health care is not the largest spending category among older people. One reason for relatively steep housing expenditures is that the aged are increasingly likely to hold mortgages on their homes, which tend to raise housing costs. The HRS data show that 25 percent of married adults ages 65 and older are homeowners with mortgages.
- Typical married adults ages 65 and older spend 84 percent of after-tax household income, and non-married adults spend 92 percent of after-tax income. Household expenditures as a share of income increases with age.
- Non-married adults ages 75 and older spend 96 percent of after-tax income, compared with 86 percent for those ages 65 to 74. In general, economically vulnerable groups spend less in absolute terms than other groups, but spend larger shares of their income.
- Fully 8 percent of married adults report after-tax incomes that fall short of our estimated basic needs threshold, consisting of housing, health care, food, and clothing.
- The share with insufficient income falls to 6 percent when we expand our definition of resources to include the potential stream of income that people could receive from their asset holdings.
- By comparison, only 3 percent of married adults have incomes below the official poverty level.
- About 19 percent of older non-married adults receive after-tax incomes less than the basic-needs threshold, similar to the share with incomes below the poverty threshold.