Demographics play a significant role in how much we spend and how we spend it. Spending is primarily dictated by age where different needs and life essentials change and evolve as consumers grow older. The challenge for many retirees now is the fact that we are all living longer, with U.S. life expectancy of 78.7 years as of 2018. As more Americans reach their 80s and 90s, medical and assisted living expenses become a much larger component.
Housing, transportation and food are the three largest expenses incurred by all age groups. As consumers move from their late 20s into their 30s, we earn more money and families start to grow. Expenditures on transportation, health care and entertainment become prevalent as households grow with children. Education is also another significant expense for many younger families, where the average cost of higher education tuitions has steadily increased over the years.
As we earn more, we also tend to save more in our 30s, 40s, and 50s by contributing to 401k plans and retirement savings. At 70.5 years of age, Required Minimum Distributions (RMDs) kick in, imposing a tax on retirement savings, which reduces as withdrawals increase when we age each year. The biggest challenge most retirees have is trying to replace lost employment income with retirement savings and Social Security. A widely accepted rule of thumb is that one will need to replace anywhere from 70% to 90% of the income, while still employed, in order to maintain the same standard of living.
The Bureau of Labor Statistics has identified the largest expenses that seniors have once in retirement. Expenses such as housing, food, and transportation are based on what a retiree spends on average in various essential categories nationwide. Housing, transportation and health care are the three largest expenses for retirees as well as all other age groups.
Sources: Social Security Administration, U.S. Census Bureau
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