June 14, 2013
Expense Allocation for Seniors
As we age, our spending priorities shift, and we generally dedicate more of our money towards living expenses. Housing accounts for 35 percent of expenses for those aged 65 and older, according to a report by Senior Housing News. The numbers were found in a Social Security Administration report released in March on Expenditures of the Aged.
The report provides an illustrative graph of the mean percentage allocated to components of total expenditures by earned income status:
The percentage of expenditures dedicated to housing vary depending on one’s income level. For example, those in the lowest income quartile spend 43 percent of their total expenditures on housing. Those in the highest income quartile spend 33 percent. The median share of expenditures allocated to housing among the three age groups (55-64, 65-74, and 75 and older) was approximately 37 percent, according to the study.
The expense allocation shift towards housing reflects a common trend in where expenses go when we age. Indeed, almost half of what the average retiree spend each year will be dedicated to living expenses, according to a report by the Silver Cross.
Transportation costs also factor in greatly to a senior’s budget. These costs will vary depending on the location of where you decide to settle down, the costs will typically go to mass transportation or motor vehicle expenses. Overall, seniors spend about 13 percent of their income on transportation.
The various expenses that seniors face in retirement can become overwhelming, as they are relying on their own retirement savings, which will steadily decline over the years, as well as what can be a meager Social Security stipend. Retirees are often advised to expect to spend 75 percent to 80 percent of their pre-retirement spending after they’ve stopped working, however this may not necessarily be true.
“There is not any universal number like that,” according to the author of a study from the Employee Benefit Research Institute (EBRI). “For different income groups and different demographic groups, Sudipto Banerjee says, “people are doing very different things in terms of balancing their spending with their incomes.”
The fact remains, however, that almost half of what the average retiree spends each year will be for living expenses. But, while housing costs may comprise the biggest expense for seniors, medical care expenses are actually the only ones to rise. “Medical expenses are the only category that goes up as you age,” according to Banerjee. Medical expenses were 9 percent of the median income of households for those aged 50 to 64. For those aged 65-74, they rose to 12 percent, and for those aged 75 to 84, they rose 15 percent.
Topics Related to This Post