Getting to the Whys of Spending in Retirement

whyIt is one thing to understand how people spend their money in retirement; it is another thing to know why they do so.  For example, through its Retirement Security Research Center (RSRC), the Employee Benefit Research Institute found that retirees:

  • Are more often interested in preserving or even growing their retirement savings than spending them down.[1]
  • Often resort to required minimum distributions as their spending plan.[2]
  • Have widely varying spending patterns.[3]
  • Change their spending patterns over time.[4]

Regarding the last two observations, new work within the RSRC based on the Health and Retirement Study Consumption and Activities Mail Survey (HRS/CAMS) data shows that spending declines as people enter retirement and progress through it.  The data show that the average individual aged 55–64 spent $54,500 in 2017. By ages 65–74, spending had decreased on average to $50,300 however, and by ages 75–85 it came in at around $38,500.

But not only does the amount of money being spent decreases, the propensity for people to spend heavily in certain areas also changes. According to HRS/CAMS, the proportion of people who heavily spend on housing in retirement tends to decline over time: from 21 percent for those ages 55–64 to 17 percent for those 65 and older. In contrast, the proportion of those spending heavily on health care increases: from 10 percent at ages 55–64 to 20 percent for those ages 75–85. Interestingly, the proportion of people who do a lot of “discretionary spending” such as spending on entertainment and contributions increases with age: 13 percent of spenders fall into the category at ages 55–64 while 18 percent do for ages 65 and above. However, discretionary spending becomes proportionally more focused on gifts and contributions for the oldest age cohorts: Gifts and contributions make up about half of discretionary spending for people 55–64 but exceed 60 percent for those ages 75–85.

What we cannot understand from the data, however, is why people are changing their spending as they do. This is critically important in designing retirement spending strategies. For example, before my dad retired, he was a foodie. He always wanted to go to the fanciest restaurants and enjoyed dining lavishly. When he retired, his behavior began to change. The local diner ultimately because his favorite restaurant and fried calamari his favorite meal choice — not exactly upscale. I worried that dad wasn’t enjoying his retirement because, even though he had the money, he didn’t spend it on treats for himself. Was he worried about running out of money? Was he trying to leave a big nest egg to his children? Or was something else at work here? I asked Anna Rappaport of the Society of Actuaries’ Post-Retirement Needs and Risks Committee about it, and she had the following opinion: It was probably indeed something else. Some older people have a hard time hearing and/or lower stamina; they don’t like sitting in noisy restaurants for long periods of time.  Others find that what was exciting and fun a few years ago is no longer engaging. Some find that with changes in health and digestion, the foods that were exciting no longer work for them.  In other words, it may not have been about money at all.  Very possibly, my dad’s priorities and preferences had just changed.

But think about the implications when it comes to spending tools. Consider the possible differences in spending scenarios my dad faced at retirement:

A) He wanted to continue his current foodie lifestyle at first but then later realized he no longer enjoyed it or that his foodie group of friends had disappeared from his life.

B) He continued being a foodie at first, but ultimately other priorities emerged.

C) He wanted to continue to be a foodie but was fearful of spending too much and not having enough for high health care bills.

D) He wanted to continue to be a foodie but also wanted to leave an inheritance.

These are four dramatically different scenarios for my dad as he planned his spending approach in retirement. The first might require education. My dad might have thought at age 65 he would want to be a foodie throughout retirement, but the reality was different: His interest (and spending) waned. This could have been anticipated and planned for accordingly. The second scenario might necessitate a better understanding of what would replace being a foodie.  Perhaps it would be something equally or more costly such as travel.  Or perhaps my dad just wanted to stay at home with his book club (again, with lower spending).  Scenario C might raise the specter of solutions addressing my dad’s concerns about health care bills. Certainly, the least optimal approach would be to try and self-insure out of fear of high out-of-pocket costs. The last scenario might beg the question — if giving is so important, why not do it now as opposed to waiting until the end of retirement?

Clearly the “whys” of spending in retirement can make a large difference in the spending advice given.

With the generous support of the RRF Foundation for Aging and EBRI’s Retirement Security Research Center, we are embarking on a project to understand what drives retirees to spend the way they do.  Our research will include surveys and interviews to gain a better understanding of what drives retirement spending decisions and how to optimize them. Combined with data from our IRA database and HRS/CAMS, this research is intended to provide a holistic view of the whys of retirement spending. If you are interested in joining the RSRC, please reach out to Betsy Jaffe at to participate in this important initiative.


[1] Sudipto Banerjee, “Asset Decumulation or Asset Preservation? What Guides Retirement Spending?EBRI Issue Brief, no. 447 (Employee Benefit Research Institute, April 3, 2018).

[2] Craig Copeland, “Withdrawal Activity of Individuals Owning Both Traditional and Roth Individual Retirement Accounts,” EBRI Issue Brief, no. 503 (Employee Benefit Research Institute, March 26, 2020).

[3] Forthcoming EBRI Issue Brief.

[4] Zahra Ebrahimi, “How Do Retirees’ Spending Patterns Change Over Time?,” EBRI Issue Brief, no. 492 (Employee Benefit Research Institute, October 3, 2019).

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President and CEO, EBRI

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