The way we spend our money changes dramatically from our 40s to our 60s, and it continues to do so in our later retirement years.
In Canada, these spending changes have more to do with evolving preferences and lifestyles than they do with the ability to spend. My parents, who both lived until 90, didn’t buy a sofa in the last 20 years of their lives – it just wasn’t a priority.
This chart has several implications. If the basket of consumer goods is so different at age 65 versus 40, it would be sheer coincidence if our spending needs continued to rise in lockstep with inflation as we transition into retirement. It is much more probable that our spending needs will rise faster or slower than inflation.
Numerous European studies suggest the latter. The chart, based on 2021 data, gives a hint of this as the group 65 and over gives almost twice as much in gifts of money as the age 40-54 age group. If spending needs really did rise faster, they would be hard-pressed to increase their gifts of money.
Also worth noting is that the amount seniors spend on direct health care costs is barely higher than what the 40-54 age group spends. This is thanks to universal health care, which puts Canadian seniors in a much better position than their U.S. counterparts. It’s another reason why Canada’s seniors should be averse to becoming America’s 51st state.
To adjust for differences in size of household, the expenditures, as shown in the chart, are derived by dividing reported expenditures by the square root of the average number of persons per household.
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)
