Newly retired pensioners with above average earnings are spending more on things like holidays through their 60s and 70s as incomes increased at a faster pace, new research shows.
According to the Institute for Fiscal Studies (IFS) spending declined only once people were into their 80s.
The figures, published on Thursday, suggest increased incomes were driven by higher state pensions and receipt of survivors’ benefits,
Incomes increasing faster than spending means that the rates of saving rose with age through retirement.
Among those born between 1939 and 1943, households with above-average incomes increased their annual spend between the ages of 67 and 75 by 7%, or £1,200 ($1,494), after accounting for inflation.
A major driver of this surge was a rise in spending on holidays, with annual average spending per person on holidays jumping by £430 between the same ages.
Spending on bills grew by £350 per person, per year between ages 75 and 85, it said, reflecting shared expenditures like these tend not fall when a partner dies and so roughly double on a per-person basis.
In contrast, spending for those with lower earnings remained broadly flat as they moved through retirement.
The average household income per person for retirees aged 62 and older jumped strongly with age, according to the report.
For those born between 1939 and 1943, average annual household income per person was £13,000 at age 67 and £16,000 at age 75, an increase of 24% – after adjusting for inflation.
However, the institute warned there are "important implications" on future retirees.
"In the new, complex world of low interest rates, high inflation and managing drawdown, they shouldn’t bank on being happy with spending falling as they get older," it said.
Heidi Karjalainen, a research economist at IFS and an author of the report, said: " As retirement incomes are increasingly funded by defined contributions pots, which can be accessed flexibly, more and more retirees face complex and consequential decisions about how quickly to draw down their pension wealth.
"If the spending patterns of current retirees are a good guide to how people in the future will want to spend, planning drawdowns on the basis of reduced spending needs in later retirement may not be wise as it may result in unexpected shortfalls in living standards at older ages.
"While average pension incomes have grown strongly with age in recent years, leaving many retirees with more resources than they chose to spend, high inflation is reducing retirees’ spending power and – along with the more uncertain outlook – makes careful financial planning all the more important."
The study, funded by the IFS Retirement Saving Consortium and the Economic and Social Research Council, examines how the spending of recent retirees changed as they aged, over the period from 2006 to 2018.
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