Why Spending Falls and Financial Satisfaction Rises in Old Age

What You Need to Know

As people age, spending on transportation and travel falls while spending on health care and gifts rises, according to a new paper from the University of Michigan.
It doesn’t appear most people of advanced age are forced to cut spending due to money constraints, the researchers found.
They found evidence that older people spend less on favorite pastimes because they enjoy them less.

People tend to spend less money in advanced old age but report feeling more satisfied financially than younger counterparts near retirement, according to recent research, which suggests that older adults incur fewer expenses as their interest in favorite pastimes wanes.

Individuals’ enjoyment of various activities may decline “with worsening health, widowing and increasing age, leading to a lessening desire to spend on them,” according to a working paper from the University of Michigan’s Michigan Retirement and Disability Research Center.

“We find strong support for this hypothesis,” researchers from the RAND Corp., the Network for Studies on Pensions, Aging and Retirement, and the National Bureau of Economic Research wrote.

Data from the study suggests most older people aren’t forced to cut spending as a result of their behavior, i.e. overspending and under-saving years earlier, they said in the paper, released in June.

To interpret and reconcile the decline in spending and greater economic satisfaction in older age, authors Susann Rohwedder of RAND and NETSPAR, Michael Hurd of those organizations and NBER, and Péter Hudomiet of RAND used new data from the 2019 wave of a consumption and activities mail survey of people older than 50.

The fraction of respondents satisfied with their economic situation is considerably higher at older ages than for those near retirement age, and more people in their 80s reported feeling no or few financial constraints compared with younger survey takers, according to the researchers.

“Nonetheless, close to 20% of those older than 80 report not being satisfied with their financial situation, pointing to heterogeneity in economic security,” they wrote.

How Retirees’ Spending Changes

The authors cited evidence to support the idea that as people age, spending on activities dependent on good health, such as travel, declines as they shift their expenditures to health care and other “substitutes.”