Do Retirees Want to Consume More, Less, or the Same as They Age?

Whether households prefer a constant, increasing, or decreasing path of consumption in retirement has important implications for our understanding of retirement adequacy. Financial planners and researchers often assume that retirees would like to maintain a constant standard of living. Similarly, Social Security benefits are based on the premise that people want steady inflation-adjusted benefits. However, several studies suggest that retired households actually decrease their consumption over time. This brief, which reports the results of a recent study, uses data from two longitudinal surveys to examine the consumption behavior of retired households.1 The analysis builds on the existing literature by: 1) examining retirement consumption over longer periods; 2) using wealth and health to separate constrained and unconstrained households in order to determine whether any declines in consumption are driven by necessity or preferences; and 3) exploring whether, within unconstrained households, those with shorter expected lifespans have faster declines in preferred consumption. The discussion proceeds as follows. The first section provides background on retirees' consumption preferences. The second section describes the data and methodology. The third section presents the results, which show that when households have assets and their health, they keep real consumption relatively flat over their retirement. This pattern is evident when comparing wealthy and healthy households separately and when comparing groups by health status within the top wealth tercile. For those with less wealth or with health issues, consumption declines as households age. In terms of life expectancies, households that expect to live longer, such as married households, have flatter consumption. The final section concludes that wealth and health constraints or longevity expectations may be important reasons that consumption drops over time for retired households as a group.