Health and Other Spending Changes With Age

Using data from the Health and Retirement Survey and the Consumption and Activities Mail Survey, the Employee Benefits Research Institute explores expenditure patterns of Americans by age.   (EBRI Article)   Large buckets of spending include home-related, food (but not dining out), health, transportation, clothing and personal care, and entertainment (which does include dining out).  For older cohorts, both surveys show similar mean total household expenditures, around $41,000 to $44,500 for 65 to 74 year-olds, and about $33,000 for those households with a member over age 75.  Home expense is the largest single category for all age groups and it represents about the same proportion of total spending for all age groups.  Health spending, on the other hand, as expected rises both in absolute dollars and as a percent of total spending, as age increases.  For example, the group aged 50 to 64 spend 8% of total budget on health care and those 85 and above (the highest age category in these surveys) spend 19%.  For households with a member over 75, health care expenses  were the second highest category after home costs.  And the median and the mean diverge in the older groups, with the median at $2800 but the median at $6600, reflecting that a few people have very high spending (remember all health care spending is out-of-pocket in these surveys, they do not include third-party payments).  In contrast, as groups age, transportation and entertainment spending falls (nothing to do and nowhere to go), while food and clothing stay relatively flat.  A longitudinal look at a specific set cohort’s spending over time revealed that average total spending dropped between 2005 and 2011, reflecting the recession, with younger households cutting back more.  For example, those aged 50-59 cut average spending from $53,284 in 2005 to $45,234 in 2011, with clothing as a category dropping 36%.  Particularly for older groups, however, health spending held up, largely because it is not particularly discretionary.  It is also interesting to note that the dispersion of total spending and health spending increases as cohorts age; that is, spending is less clustered around the mean and becomes skewed to the right.  The data are interesting to a variety of parties, but particularly to those approaching retirement and old age.  Knowing where your money is likely to have to go can be helpful for planning.