Major Spending Changes for Middle Age and Soon-To-Retire Americans in The Last Twenty Years

The National Center for Policy Analysis issued a study that compared spending by Americans in the two decades before their classic retirement age of 65 years, and compared this information to what existed twenty years ago. The study used the Bureau of Labor Statistics’ Consumer Expenditure Survey.

Here is a summary of the major findings:

  1. Americans’ real median income has dropped. Real income of those aged 45 to 54 years old peaked in 1999, and fell 16%. Corresponding with the recession, but eight years later than those who are a decade younger, real income of those aged 55 to 64 years old peaked in 2007. Since 2007, these Americans’ real median income fell more than 6%.
  2. These older Americans are spending more on education and education debt than occurred twenty years ago. For those aged 45 to 54 years old, spending in this category increased 80%, with spending increasing 22% for those in their last decade before age 65. College costs have increased significantly more than income for decades, with much of this increase being funded by debt. The New York Federal Reserve Bank found that one-third of the nation’s student loan debt is now held by individuals over the age of 40.
  3. Older Americans are spending considerably more on their adult children.
  4. Older Americans are spending more on mortgage debt. The increase in interest costs is attributed to (i) larger average-sized homes than existed twenty years ago, and (ii) generally more lax lending standards, which allow smaller down payments and larger loan balances. Americans are now carrying mortgage debt into retirement with increasing regularity.
  5. Not surprisingly, health care expenditures, including insurance premiums and all out-of-pocket expenses, rose 30 percent for 45 to 54 year olds and 21 percent for 55 to 64 year olds. Health care has increased more than the general rate of inflation for practically all portions of our society.
  6. Between social security taxes and other contributions to retirement programs (like a 401(k) plan), retirement savings costs increased. Generally, these expenditures comprise around 3% more of one’s total income than what existed 20 years earlier. However, the total amount contributed to retirement programs or other savings is still considerably less than the guidelines that are needed for one to fully fund one’s retirement.
  7. Older Americans are spending LESS on several basic items. According to the report:

Transportation expenditures — including car purchases, maintenance, gas and public transportation — fell for both the 45-to-54 year-old group and the 55-to-64 year-old group, by 16 percent and 12 percent, respectively. …

Food purchases (including restaurant purchases) fell 18 percent for 45 to 54 year olds and 20 percent for 55 to 64 year olds.

Household furnishings fell nearly one-third for 45 to 54 year olds and one-fourth for 55 to 64 year olds.

Clothing expenses showed the steepest decline, falling 42 percent for 45 to 54 year olds and 70 percent for 55 to 64 year olds.”

Generally, the report paints a picture that indicates that middle aged and soon-to-retire Americans are generally not better off now than 20 years ago.

This article provides quotes from this study.

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