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I'm trying to figure out if I can retire. I don't know how much money I'll spend. To get an idea of how much I might need retired in Canada, I downloaded the public use micro sample from Statistics Canada's Survey of Household Spending and processed it using the excellent Wizard Statistics program on the Mac. I'm hoping some of you will also find this information useful, and I'd like to hear your reactions.
Here is the distribution of the expenditures of 2 person households in 2017 both people are 65+:
Mean value 67.5k, but a lot of variation.
Here is the distribution of consumption, which is a little less than expenditure, because it doesn't include income taxes, buying investments, giving money to your grandkids, purchasing life insurance, and things like that:
Mean value of 52.7k. (This includes mortgages, so I also filtered on people who own their homes without mortgages, and it's almost identical.)
Here is consumption for 2 person households when both people are 65+ and at least one person is 75+
Mean value 46.7k, supporting the notion that you need less when you're 75+ than when you're 65 to 75.
Here is consumption for 1 person households 65+
Mean value 32K.
I'm curious as to how this compares to people's real experience after 65? Do these seem high or low to you? We talk a lot about income in retirement, but I think we should talk about expenditures and consumption.
A lot of older people I know have plenty of income, because of luck and planning, but they don't spend it. There is some USA research referenced on FIRECalc that tries to disentangle whether lower spending at higher ages is a voluntary choice or simply a product of how much income is available and the culture in which one was raised. Unfortunately, I don't have an indication of wealth in this data, but I do have income. Here is a graph showing the relationship between income and consumption for 1 person 65+:
You can see that expenditure goes up with income, but only at a rate of 41cents of extra consumption for each dollar of extra income. The linear regression model of consumption as a function of income is:
Here is the relationship for 2 person households all 65+, again only 41 cents of additional consumption for every extra dollar of income:
Here is the distribution of the expenditures of 2 person households in 2017 both people are 65+:
Here is the distribution of consumption, which is a little less than expenditure, because it doesn't include income taxes, buying investments, giving money to your grandkids, purchasing life insurance, and things like that:
Here is consumption for 2 person households when both people are 65+ and at least one person is 75+
Here is consumption for 1 person households 65+
I'm curious as to how this compares to people's real experience after 65? Do these seem high or low to you? We talk a lot about income in retirement, but I think we should talk about expenditures and consumption.
A lot of older people I know have plenty of income, because of luck and planning, but they don't spend it. There is some USA research referenced on FIRECalc that tries to disentangle whether lower spending at higher ages is a voluntary choice or simply a product of how much income is available and the culture in which one was raised. Unfortunately, I don't have an indication of wealth in this data, but I do have income. Here is a graph showing the relationship between income and consumption for 1 person 65+:
You can see that expenditure goes up with income, but only at a rate of 41cents of extra consumption for each dollar of extra income. The linear regression model of consumption as a function of income is:
outcome variable | explanatory variable | coefficient | standard error | t-statistic | p-value | 95% confidence interval (lower) | 95% confidence interval (upper) | ||
------------------ | ---------------------- | -------------- | ---------------- | ------------- | ---------- | --------------------------------- | --------------------------------- | ||
TC001 | HH_TotInc | 0.413910 | 0.030988 | 13.357239 | 0.000000 | 0.353008 | 0.474813 | ||
TC001 | constant | 14761.503042 | 1551.074070 | 9.516956 | 0.000000 | 11713.050267 | 17809.955816 |
Here is the relationship for 2 person households all 65+, again only 41 cents of additional consumption for every extra dollar of income:
outcome variable | explanatory variable | coefficient | standard error | t-statistic | p-value | 95% confidence interval (lower) | 95% confidence interval (upper) | ||
------------------ | ---------------------- | -------------- | ---------------- | ------------- | ---------- | --------------------------------- | --------------------------------- | ||
TC001 | HH_TotInc | 0.408017 | 0.020069 | 20.330552 | 0.000000 | 0.368586 | 0.447449 | ||
TC001 | constant | 22592.314670 | 1766.936849 | 12.786147 | 0.000000 | 19120.694855 | 26063.934486 |