Change in Household Spending After Retirement : Results from a Longitudinal Sample

This paper shows how household spending changed in the immediate years following retirement by analyzing the spending patterns of a fixed group of households up to six years after their retirement. Two sources of data are used for this study. First is the Health and Retirement Study (HRS), which is a study of a nationally representative sample of U.S. households with individuals over age 50. The other source of data is the Consumption and Activities Mail Survey (CAMS), which was started in 2001 as a supplement to the HRS. The data show that household spending dropped at the beginning of retirement. In the first two years of retirement, median household spending dropped by 5.5 percent from preretirement spending levels, and by 12.5 percent by the third or fourth year of retirement. But the spending reduction slowed down after the fourth year. Although average spending in retirement fell, a large percentage of households experienced higher spending following retirement. In the first two years of retirement, 45.9 percent of households spent more than what they had spent just before retirement. This declined to 33.4 percent by the sixth year of retirement. Households that spent more in the first two years of retirement were not exclusively high-income households; rather they were distributed similarly across income levels. In the first two years of retirement, 2 in 5 households (39.3 percent) spent less than 80 percent of their preretirement spending. By the sixth year of retirement, a majority (53.1 percent) of households did so. In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their preretirement spending. By the sixth year of retirement, 23.4 percent of households still did so. A very small percentage of the household budget was spent on durable goods. The median household (half above and half below) spent nothing on durables in retirement. Transportation spending showed the highest drop in the first two years of retirement. Median spending on transportation went down by 25.1 percent in the first two years of retirement, although the reduction in subsequent years was small. The median household had a mortgage payment before retirement but none after retirement