How Retirement Spending Has Shifted: Key Differences Compared With Earlier Generations

Key Takeaways

• Inflation-adjusted spending by retirees age 65 and older has increased 38% since 1990, driven mainly by housing, transportation, and healthcare.

• Housing makes up nearly half of the increase, with especially strong growth among the oldest retirees.

• Spending has declined in a few areas, including apparel, tobacco, and reading.

Retirees today are spending much more than earlier generations did.

Adjusted for inflation, household spending among Americans age 65 and older rose an average of 38% between 1990 and 2024, according to an Investopedia analysis of Bureau of Labor Statistics consumer spending data. Among people 75 and older, spending increased 50%. Over the same period, spending across all U.S. households rose only 15%.

That does not mean retirees are living more lavishly. The biggest drivers of the increase are everyday necessities such as housing, transportation, and healthcare.

Why This Matters

Investopedia’s review of BLS data challenges the common belief that spending automatically falls as people age. For a growing number of retirees, expenses are rising, which could mean future retirees will need larger savings.

Why Retirees Are Spending More

Households headed by people age 65 and older spent $61,432 in 2024, up from an inflation-adjusted $44,538 in 1990.

Where did the added money go? BLS data show that nearly every category increased, though not equally.

Two measures help explain the change: the dollar increase, which shows how much more retirees are spending, and the percentage increase, which shows how quickly a category grew from its original level.

By percentage growth, education increased the fastest, though it began from just $130 in 1990. Next were personal insurance and pensions, which roughly doubled from $1,724 to $3,480; entertainment, which rose 80% to $3,025; and alcoholic beverages, which climbed 76% from $303 to $532.

Percentage growth can be misleading because it favors categories that started from a very small base. A large percentage gain does not always translate into a major share of the household budget.

Dollar increases tell a different story. By that measure, housing was the biggest driver, adding $7,728 to the average retiree budget. Transportation came next, rising $2,616 to $9,538, followed by healthcare and personal insurance and pensions.

Only a few categories fell in real-dollar terms. Spending on apparel and services dropped from $1,844 to $1,198; tobacco declined nearly 30% to $266; and reading fell sharply from $329 to $120.

Housing Is Claiming a Larger Share of Retirement Budgets

Housing has long been the largest expense for retirees. Now it takes an even bigger share.

This category, which includes shelter such as rent, mortgage interest, property taxes, and insurance, along with utilities, paid household help, housekeeping supplies, and furnishings, rose from $14,465 in 1990 to $22,193 in 2024. That $7,728 increase accounts for nearly half of everything retirees added to their spending since 1990 and challenges the old idea that retirement automatically brings predictable housing costs after mortgages are paid off.

The BLS data also show that housing takes up a larger portion of the budget at older ages in retirement. Households age 75 and older devoted 39% of spending to housing in 2024, compared with 34% for those ages 65 to 74.

That is not because older retirees spend more on housing in absolute terms. In real dollars, their housing costs are nearly identical at $21,999 versus $22,329. But their total spending is $9,520 lower overall, largely because transportation and apparel budgets are smaller. Since housing does not decline along with everything else, it represents a bigger share of a smaller total.

The gap was wider in the past. In 1990, households age 75 and older spent $13,130 on housing, compared with $15,483 for those ages 65 to 74. Since then, housing costs for retirees 75 and older have risen 68%, versus 44% for the 65-to-74 group and just 26% for the overall population.

Important

The BLS surveys do not include people living in long-term care facilities, so the true housing costs for the oldest retirees, especially those with the greatest care needs, may be even higher than these figures suggest.

The BLS data do not directly explain why housing costs are climbing. Still, recent trends suggest more retirees are taking on higher mortgage expenses because rising home prices have delayed home purchases until later in life. At the same time, many older adults are remaining in their homes longer instead of downsizing or moving in with family.

Read the original article on Investopedia