In 2023, older adults played a significant role in driving consumer spending. This can be attributed, in part, to a record increase in Social Security benefits. However, experts predict that this growth will taper off in the new year.
Social Security beneficiaries experienced an 8.7% cost of living adjustment (COLA) in 2023, which marked the highest increase in 40 years. This boost supported spending among the baby boomer and silent generations, who also benefit from pensions. However, the COLA for the upcoming year will only be 3.2%.
Despite inflation rates being significantly lower than the 8.7% COLA, the impact on retirees’ spending will not be as substantial in 2024. Bank of America Institute Senior Economist, David Tinsley, explains that retirees will not receive the same value for their money from the COLA this time around. As a result, the impact of the COLA will diminish.
Financial Expectations for Older Generations
Bank of America suggests that older generations’ assessment of their financial health is expected to decline in the next six months. On the other hand, younger generations generally hold more positive expectations about their finances six months down the line compared to their current outlook.
Tinsley adds that older consumers will likely not feel as financially secure in the coming year as they did in 2023.
Spending Power and Outlook
While the positive influence of the 2023 COLA may wane in 2024, there are still various factors that contribute to older generations’ spending power. As a result, they are expected to outperform other age groups, albeit by a narrower margin.
Tinsley highlights that retirees have diverse sources of income, including pensions, which enables them to maintain higher spending levels compared to younger generations.
Bank of America’s report reveals that in 2023, the year-over-year growth in total credit- and debit-card spending per household was significantly higher among the baby boomer and silent generations compared to younger cohorts.
The Spending Habits of Older Generations
According to a Bank of America report, older generations, particularly baby boomers, are responsible for the recent increase in consumer spending. During the second quarter of 2023, baby boomers had approximately $80 trillion in assets, compared to millennials who had $14 trillion.
A Financial Advantage for Older Adults
The report highlights that older adults have been able to maintain their financial strength by managing their savings and checking balances more effectively than younger generations. This advantageous position gives them more financial freedom moving forward.
Spending by Necessity, Not Choice
Although older adults may be spending more, it is crucial to note that this increase is largely driven by rising prices rather than frivolous spending. Analysts suggest that many older households are under financial pressure and must spend more due to essential needs rather than personal choice.
Mary Johnson, a Social Security and Medicare policy analyst with the Senior Citizens League, believes that older households are spending out of necessity rather than preference. She expresses concerns about the sustainability of this level of spending while also maintaining their nest eggs. Johnson emphasizes that persistent high prices are a major contributing factor.
Catching Up on Essential Services and Repairs
Johnson points out that a portion of the increased spending among older adults is tied to catching up on previously postponed medical, dental, optical, and other health services. Additionally, home repairs and maintenance that were delayed due to staffing shortages are now being addressed. These necessary expenses have contributed to the overall rise in spending.
The Impact of Cost-of-Living Adjustments (COLA)
The COLA, which accounted for an average increase of $146 per month for beneficiaries, has also played a role in increased spending among older adults. However, this increase will be reduced to around $50 per month in 2024.
A survey conducted by the Senior Citizens League found that spending habits among older adults differ significantly. Approximately 45% of respondents reported spending less than $2,000 per month, while 37% spent between $2,000 and $3,999 per month. Only 15% of respondents reported spending $4,000 or more on a monthly basis.
Essentials Take Priority
It is worth noting that a substantial percentage of older adults heavily rely on Social Security income. Roughly 40% to 44% of seniors depend solely on Social Security for their income, with approximately 80% of that income allocated towards housing, healthcare, and groceries. This data indicates that their spending largely focuses on essential needs rather than luxury items or extravagant purchases.
