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Older adults have helped drive consumer spending in 2023, driven in part by a record hike in Social Security, but that growth is expected to ease somewhat in the new year.
This year, Social Security beneficiaries received a 8.7% cost of living adjustment — the highest increase in 40 years — propping up spending in the baby boomer and silent generations that also benefit largely from pensions. But next year, the COLA will be 3.2%.
“The COLA of 8.7% was quite a lot higher than inflation was in 2023. It was unusual for a COLA — it went further than you would expect,” said Bank of America Institute Senior Economist David Tinsley. “The COLA of 3.2% for 2024 is different. Inflation is not going to be wildly different than that. Retirees won’t get the same bang for their buck from COLA this time. The COLA impact will diminish.”
When looking at expectations for financial health in six months, Bank of America said it sees a decline in older generations’ assessment of their likely finances, while younger generations’ expectations are generally more positive in six months’ time than they are now.
“Older consumers won’t feel as in good shape this coming year versus 2023,” Tinsley said.
Read: Consumer spending climbs again, even after adjusting for high U.S. inflation
While the positive impact from COLA in 2023 may fade in 2024, there are enough positive upside influences on older generations’ spending for their spending power to outperform other age groups — just not by as wide of a margin, Bank of America said.
“Retirees in general have diverse sources of income, including pensions. The average retiree still outstrips the younger generations next year in terms of spending,” Tinsley said.
In 2023, year-over-year growth in Bank of America total credit- and debit-card spending per household was significantly higher for the baby boomer (currently aged 59 to 77) and the silent generations (78 and older) than for younger cohorts, according to a Bank of America report.
“In fact, Bank of America internal data suggests these older generations are the only ones increasing consumer spending in (year-over-year) terms,” the report said.
Baby boomers had around $80 trillion of assets in the second quarter of 2023, compared with $14 trillion for millennials, according to a Bank of America report.
“And within this healthy asset position … baby boomers, in particular, have drawn down their savings and checking balances more slowly than the younger generations, potentially giving them more ‘firepower’ going forward,” the report said.
Spending by necessity, not by choice
While older adults may be spending more, much of the increases are related to higher prices, not careless spending, other analysts said.
“It’s true that many older households are spending gangbusters, but I suspect many are doing so under duress. I question how long people can keep this up and still hold their nest eggs together,” said Mary Johnson, Social Security and Medicare policy analyst with the Senior Citizens League, a pro-senior think tank.
“There may well be some spending due to travel and some pent-up demand. But my guess? I suspect persistent high prices have a lot to do with it,” Johnson said. Catching up on medical, dental and optical and other health services that were postponed in recent years due to staffing shortages. The same goes for home repairs and maintenance.”
The 8.7% COLA accounted for an average of $146 more per month for beneficiaries, Johnson said. The COLA increase for 2024 will be about $50 a month, on average.
A survey by the Senior Citizens League found that 45% of older adult respondents spent less than $2,000 a month, 37% spent $2,000 to $3,999 a month and 15% reported spending $4,000 or more a month.
About 40% to 44% of seniors rely on Social Security for all of their income, Johnson said. “Most of that — about 80% — is going toward housing, healthcare and groceries; essentials, not shopping sprees.”
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