Research: Falling retirement spend driven by behaviour, not declining income

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By Jeff Gebler | 06 August 2018

Does spending decline dramatically through retirement due to declining assets balances? Can individuals predict their retirement spending based on pre-retirement income?

New analysis by Milliman suggests that retirees’ age is just as strong an indicator of behaviour as income levels and casts doubt on common benchmarks, such as using a percentage of final salary as a retirement savings target, which make little allowance for lifestyle changes.

The Milliman Retirement Expectations and Spending Profiles (ESP) shows that the median retired couple’s expenditure falls by more than one-third (36.7 %) as they move from early retirement (age 65 to 69) and into older age (85 years and beyond).

However, this new analysis includes the latest census income data, revealing that poor, middle-income and high-income retirees all show similar declines in expenditure throughout retirement.

The graph below tracks personal income (using census data) against expenditure (using the Milliman Retirement ESP) for low-income retirees (annual income below $33,800). While expenditure briefly peaks above income just before retirement, it quickly tapers off into older age.

Figure 1: Personal income vs. household expenditure (LOW)

Middle-income retirees (annual income between $33,800 and $91,000) also show similar declining expenditure (although their expenditure never exceeds income) as shown in the graph below.

Figure 2: Personal income vs. household expenditure (MID)

Similarly, high-income earners (annual income above $91,000) are also saving money into retirement as shown in the following graph.

Figure 3: Personal income vs. household expenditure (HIGH)

While wealthier retirees spend more in absolute terms, all three groups are saving money in retirement.

How spending changes in retirement regardless of wealth

The Milliman Retirement ESP provides the most accurate possible picture of retiree behaviour by tracking changes in the real-world expenditure of more than 300,000 older Australians.

It shows that the average proportion of income spent on housing, food, energy, leisure, goods and services, travel and insurance either declines slightly, or remains the same, regardless of income levels, through retirement. Only expenditure on healthcare increases.

Figure 4: Average expenditure (Q2)

But while overall spending declines, there are still significant variations between the lowest and highest earners (these full results are available to subscribers). There are also important expenditure trends underway with home ownership levels declining in Sydney and Melbourne while energy prices are escalating quickly.

While energy represents a small proportion of overall household expenditure, the amount spent is significantly correlated to income levels: higher income households have more expensive (and energy-consuming) lifestyles.

Energy expenditure increases until about age 65 and then stabilises before rising from age 80 (this may be because elderly Australians spend more time at home and want to feel more comfortable rather than moving into aged care accommodation).

This data and the trends it reveals have important implications for super funds attempting to meet the needs of their members. It should feed into communication strategies, general and personal advice and product design.

In this way, funds can meet the actual lifestyle needs of their members.

The full Milliman Retirement ESP report is published to subscribers each quarter. Contact Milliman senior consultant Jeff Gebler at for more details.


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