Have Big Social Security COLAs Sparked a Retirement Spending Spree?

“These differences in housing costs likely reflect important life-cycle influences,” the BofA experts explain. “Younger generations will need to move for work, to accommodate expanding families and, more broadly, as they seek more space as they mature.”

These factors expose younger Americans more frequently to rising rents, particularly when moving, than older generations. The same is true for house purchases, while conversely, older generations may have less pressure to move and in aggregate are less likely in any case to have a significant, outstanding mortgage.

An additional factor constraining younger generations’ spending choices, according to Bank of America’s data, could be the pending need to resume paying student loans.

“The overall impact of the ending of the moratorium on student loan payments will depend on how the Biden administration’s plan to forgive some student loans, which is currently being examined by the Supreme Court, is resolved,” the analysis suggests. “This will determine for many borrowers the envelope of their future student debt.”

Big Shifts in Confidence and Spending

Like Benz, David Blanchett, managing director and head of retirement research at PGIM DC Solutions, suggests there is more to consider than big Social Security COLAs and student loans. Based on Prudential’s internal survey data, he says spending and confidence are in flux across the generations.

“When you mentioned spending, the first thing I thought of was financial confidence,” Blanchett wrote to ThinkAdvisor. “People tend to spend more when they have higher levels of confidence. If I look at the trends, though, I’m seeing the opposite effect of what’s noted in [the BofA] report. We find older people are showing more signs of financial stress than younger people.”

There hasn’t been much of a shift in confidence over the last six to 12 months, Blanchett adds, but looking back to December 2021, the confidence decline among older generations is much more evident.

“For example, in December 2021, 34% of respondents over the age of 50 were financially confident, which dropped to 26% last month,” Blanchett explains. “In contrast, the change among respondents under the age of 35 was 19% to 18%.”

As Blanchett notes, younger people are generally less financially confident, but the actual confidence changes have been greatest among older respondents. The Prudential data suggests an especially large drop in financial confidence among older respondents with higher household income levels.

For example, over the same time period from December 2021 to May 2023, the percentage of respondents over the age of 50 with household incomes over $150,000 that were financially confident fell from 50% to 39%. Financial confidence among older households with incomes less than $50,000, conversely, increased sharply from 29% to 39%.

“There is actually a decent amount of parity now in terms of financial confidence across income levels for older [households that] definitely doesn’t exist for those with less incomes,” he concludes.

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