Retirement spending surprises

Recent research has cast a new light on retirement spending habits.


Do you expect your spending to reduce gradually once you retire?

It is often thought that as people pass through retirement their spending falls, assuming they do not have to pay for residential care. However, fresh research by the Institute for Fiscal Studies (IFS) using recent UK population data suggests this is not what happens. It appears that earlier investigations may have been mistaken in their approach.


The IFS found that if weekly per person expenditure was simply plotted against age, then there was a distinct downward drift, as the old research had suggested – between 62 and 72 there was a drop of about 15%. However, a more detailed examination looking at groups of retirees based on their year of birth revealed a different picture.

Within each group, after adjusting for inflation, expenditure generally rose slightly year-by-year, except for those well into their 80s. What the snapshot picture of spending across all ages missed was that the younger the retiree group, the higher was their initial expenditure, probably because of greater pension and other wealth.

The composition of that spending changed with age, but again the IFS found common beliefs that were not always correct. While across the different groups spending on motoring fell with age, holiday expenditure continued rising until age 80. However, there was once more a wealth-related gap between the birth date groups:


· Of those aged 82 and born between 1924–1928, 57% spent on motoring while 19% had holiday expenditure.

· For those aged 62 and born between 1944–1948 the corresponding proportions were 83% and 41%. This mirrors another IFS finding that later-born generations spend more at the start of retirement on categories such as leisure services and holidays.


The IFS concluded that “…if the spending patterns of current retirees are a good guide to how people in the future will want to spend, current savers might be best advised not to plan their retirement saving on the basis that their overall spending will fall sharply during retirement.” In other words, your retirement plans may need a review if you have assumed you can live with a decreasing income (even before considering inflation).


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