Connections
Work with your personal adviser to grow your wealth

Retiree Spending Patterns Differ from Expectations

Recent analysis of real-world expenditure data from Australia has shown a dramatic fall-off in retiree spending as retirees age. Given the similarity between Australian and our demographics, this study provides useful information for retirees in New Zealand.

How retirement spending falls

The median retired couple’s expenditure falls by more than one-third (36.7%) as they move from their peak spending years in early retirement (65 to 69 years-of-age) and into older age (85 years and beyond). The decline in expenditure for couples is relatively stable in the early years of retirement at about 6% to 8% across each four-year age band, but then rapidly accelerates once retirees pass 80 years-of-age.

Association of Superannuation Funds of Australia (ASFA) has previously estimated a ‘comfortable’ couple aged 85+ years will spend about 8% less than those aged 65-85 years of age. Another industry study by the Australian Institute of Superannuation Trustees (AIST), based on Household, Income and Labour Dynamics in Australia (HILDA) data, has suggested that spending may not decline materially through retirement.

However, the Milliman Retirement Expectations and Spending Profiles (ESP) analysis is the first based on the actual spending of more than 300,000 Australian retirees.

The data shows that retirees’ food expenditure—the largest component of essential spending—declines steeply with age, while health spending increases with age but dips again after age 80. All discretionary expenditure, such as travel and leisure, declines throughout retirement.

The faster-than-expected drop-off in spending casts doubt on some common rules of thumb and suggests that financial plans for retirees that assume a steady or increasing spending over time may be conservative relative to actual behaviour.

This is potentially good news as retirees can end up with a higher portfolio balance due to underlying asset growth outstripping spending as they get into the later stages of retirement.

Filed under Newsletter
Find An Adviser CONTACT NOW
Become A Client START NOW