Household Spending Decreases with Age, EBRI Finds

EBRI says “This research also suggests that retirees are adept at adjusting their consumption as needed in order to fit their circumstances, such as reducing spending in times of a market downturn or recession."

Household spending decreases with age, according to the Employee Benefit Research Institute’s (EBRI’s) study of the Health and Retirement Study and the Consumption and Activities Survey for older Americans between the ages of 50 to 64, 65 to 74 and 75 and older, between 2005 and 2017.

EBRI notes that a common approach to planning for retirement is to assume that people should spend a certain level of pre-retirement income for every year throughout retirement. “However, evidence from actual retiree spending patterns challenges this assumption,” EBRI says in its issue brief, “How Do Retirees’ Spending Patterns Change Over Time?” “A series of focus groups and surveys conducted by the Society of Actuaries and their partners found that the spending patterns of early versus late retirees differed dramatically.”

The reason for this, EBRI says, is that when a person first retires, they have time for hobbies, which could be expensive, like golf, and for socializing, which includes eating out at restaurants. Once a person has been retired for 15 years or more, they begin to cut back on their spending, due to inflation eating into their savings.

EBRI found that the average household expenses for those 50-64 were $55,000 in 2005. In that same year, they were $43,000 for those 65-74, which was 22% less. For those 75 and older, total household expenditures were $33,000, or 23% less than the 65-74 age cohort and 40% less than the 50-64 age cohort. This pattern was consistent across all survey years.

Housing was the greatest expense, both in terms of dollar terms and share of annual spending. For those 50-64, it ranged from $23,000 to $25,000 a year. For those 65-74, it ranged from $17,000 to $21,000 a year, and for those 75 and older, the range was $13,000 to $18,000 a year.

While there are minor differences in the proportion of total good expenditures among the different age groups, households spent less on food as they grew older, ranging from a high of $5,000 to $5,500 for the 50-64 age group to a low of $3,000 to $4,000 for the 75 and older age group. Average spending on food for those between the ages of 65 and 74 ranged from $4,400 to $4,900.

Not surprisingly, the share of household budgets devoted to health costs increased with age. However, the average and median dollar amounts did not show large variations across age groups in any given year. Those 50-64 spent between $4,100 to $4,500 on health care. Those 65-74 spent $4,100 to $4,700, and those 75 and older spent $4,000 to $5,000.

Transportation expenses declined with age both in dollar terms and in share of total spending. Those 50-64 spent between $6,700 to $8,200 a year on transportation. Those 65-74, $5,000 to $5,700. Those 75 and older, $2,900 to $3,800.

Clothing expenses also declined, from a range of $1,400 to $1,800 for the 50-64 age cohort, to a range of $1,200 to $1,500 for the 65-74 age cohort, to $911 to $1,200 for those 75 and older.

Entertainment expenses also declined, showing a major drop-off for those 75 and older. They ranged from $4,500 to $5,400 for those 50-64, to $4,100 to $5,400 for those 65-74, to $2,500 to $3,600 for those 75 and older.

Contributions also ticked downward, but only so slightly. They ranged from $2,900 to $3,400 for those 50-64, to $2,700 to $3,600 for those 65 to 74, to $2,700 to $3,200 for those 75 and older.

In conclusion, EBRI says “people spend more early in retirement and gradually decrease their spending as they age. This research also suggests that retirees are adept at adjusting their consumption as needed in order to fit their circumstances, such as reducing spending in times of a market downturn or recession. Indeed, those ages 75 or older were spending on average a third less than those ages 50-64.”

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Investment Product and Service Launches

OneAmerica expands its group annuity platform with ESG offerings, and Vanguard adds an international core stock fund, overseen by Wellington Management. 

Art by Jackson Epstein

Art by Jackson Epstein

OneAmerica Expands Group Annuity Platform With ESG Offerings

OneAmerica has added 12 environmental, social and governance (ESG) investment offerings to its group annuity platform, due to increasing interest in ESG investing over the last six months.

“For some, the value of an investment is no longer just about returns, but about returns that are achieved in concert with making a positive impact on society and the world at large,” says Sandy McCarthy, president of OneAmerica Retirement Services. “ESG indexes can achieve these dual ideals, because, as Morningstar research shows, they favor companies with healthier balance sheets, stronger competitive advantages and lower volatility than their mainstream counterparts.”

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Between 2016 and 2018, sustainable, responsible and impact (SRI) investing assets grew more than 38%, rising from $8.7 trillion in 2016 to $12 trillion in 2018, according to the U.S. Forum for Sustainable and Responsible Investment (US SIF).

Investment professionals use standard criteria to evaluate potential investments to determine if they qualify as an ESG investment option. This includes environmental criteria, which considers how a company performs as a steward of nature; social criteria—how a company manages relationships with employees, suppliers, customers and the communities where it operates—and governance, which deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

“We provide a full range of investment options, and ESG investing is appealing to a segment of the retirement plan participant community who want to invest in things they believe in to make a positive impact on society and the world at large beyond just returns,” says Terry Burns, managing director, products and  investments, retirement services. “To these investors, there are investment options out there that think the way they think. Our broad menu of ESG funds satisfies that desire.”

ESG funds were added during the second and third quarters. Adding these investment options to the group annuity platform means they are now fully available to OneAmerica clients.

Vanguard Adds International Core Stock Fund, Overseen by Wellington Management

Vanguard has introduced the Vanguard International Core Stock Fund (VWICX), expanding its actively managed roster of more than 70 mutual funds and exchange-traded funds (ETFs).

The new fund, which will be managed by Wellington Management Co. LLP, includes three additional active offerings introduced over the past year: Vanguard Global ESG Select Stock Fund, Vanguard Commodity Strategy Fund and Vanguard Global Credit Bond Fund.

Vanguard International Core Stock Fund is designed to be a core holding, offering an active portfolio of developed and emerging market equities that is designed to outperform across regions, styles and sectors. Vanguard advocates for investing in international stocks and bonds for the diversification and return potential, but its research indicates that many U.S. investors exhibit “home bias” and have inadequate exposure to international securities.

Wellington Management seeks to build an “all-weather” portfolio that prioritizes stock-specific exposure, limiting the portfolio’s style, factor, region and industry risk exposure through a sophisticated and centralized risk management approach. The firm’s approach targets an opportunity set of 350 to 400 companies, of which the fund will seek to hold approximately 60 to 100 large- and mid-cap stocks based on its assessment of each company’s management team, capital allocation and competitive advantage.

Vanguard International Core Stock Fund will be managed by Kenneth L. Abrams, senior managing director and equity portfolio manager, and F. Halsey Morris, CFA [Certified Financial Analyst], senior managing director and global industry analyst.  

Vanguard International Core Stock Fund will be offered in Admiral Shares, with an estimated expense ratio of 0.35%, and Investor Shares, with an estimated expense ratio of 0.45%, both considerably lower than the asset-weighted average expense ratio of 0.75% for the industry’s large-blend fund category.

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