This is disturbing news to many financial professionals, especially when they compare data from the Bureau of Labor Statistics’ Consumer Expenditure Survey and the Federal Reserve of Consumer Finances. One discovers that expenditures of today’s seniors and those of twenty years ago have grown less than one percent a year, but the allocation of spending on services and goods has changed significantly.
Some of the reasons are:
- More seniors are carrying mortgages and having to spend more of their expenditures on interest payments.
- Overall housing expenses (including maintenance, property taxes, insurance and mortgage interest) are the largest category of expenditures for seniors.
- Healthcare is a rising expense. These expenditures include out-of-pocket costs for physician visits, treatments and lab tests, medical equipment, prescription and over-the-counter drugs and supplemental insurance premiums, but exclude Medicare Part B premiums.
- Seniors expenditures increasingly reflect their hobbies, as they are spending more on hobbies and non-essentials than they did in 1990.
- Money is spent on miscellaneous entertainment, including exercise equipment, photography equipment, campers, boats and other motorized recreational vehicles, and electronic video games.
- Pets and hobbies is a growing category. It also includes expenses for pets and pet supplies, but also toys, games, tricycles and playground equipment.
- Seniors aren’t giving up their cars and are driving longer.
- The other issue is seniors have more credit card debt than ever before. Some of the growth in purchases is taking place with the use of credit cards.
With all of this information, it shows that today’s seniors vary on how they spend their money.
Although discretionary and recreational purchases have increased, today's seniors are taking on debt in the form of credit cards and mortgages. Besides this, with the low interest rates on savings and a tax policy that subsidizes consumption over saving, seniors don’t have a lot of incentive to save.
Financial professionals can use this information to help their clients prepare for the future, so they are ready for retirement years and won’t have to worry about running out of money. It means providing information on the best products available and giving seniors a reason to save.
“How Are Seniors Spending Their Money?,” http://www.ncpa.org/pub/ib135#sthash.I09fp06T.dpuf, last accessed 7-8-15
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This material is intended for educational purposes only and is not intended to serve as the basis for any investment or purchasing decision. Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney.