Some signs of change are subtle.
Consider this. The Wall Street Journal has run a series of articles on how retirees live at different levels of wealth. The most recent profiled retirees with at least $5 million in financial assets.
According to figures based on the Federal Reserve Survey of Consumer Finances, that qualifies as pretty high cotton. How high? Only the top 2.5 percent of all households have that much wealth in financial assets. Indeed, financial assets in excess of only one-tenth of that amount, $500,000, would put you in the top 16 percent of households.
You’d think people with $5 million or more would be living rather well. You’d expect them to be spending lots of money on all those luxurious things advertised in, well, The Wall Street Journal.
But they’re not.
Yes, they live comfortably. They have few, if any, complaints. Their spending habits reveal an absence of what economist Thorstein Veblen long ago called “conspicuous consumption” in his book “The Theory of the Leisure Class.”
In modern terms, they don’t have a thing for bling. Here are some examples from The Wall Street Journal article:
— A retired and divorced airline pilot with $6.1 million spends $144,000 a year but is deferring taking Social Security until he reaches his full retirement age in a couple years. That will add, he figures, another $40,000 to his annual income.
— A retired couple in North Carolina with $4.2 million spends $130,000 and intends to wait until 70 to take Social Security benefits.
— A Montana couple with $6.1 million spends $220,000 but also has $130,000 in Social Security and pension benefits.
They could easily spend more. So, it’s clear that all those advertisements for Gucci, Fendi and dozens of other luxury brands that appear in multiple glossy publications are entirely powerless over the spending of the very people you’d think were the target customers.
Is this really a surprise? Hardly, the people who accumulate wealth tend to prefer saving over spending, witness the findings in Thomas Stanley’s famous book “The Millionaire Next Door.”
Indeed, the tendency to hold onto wealth approaching and into retirement suggests that our aging population will be a major contributor to Peak Consumption. Researcher David Blanchett showed that our spending tends to decline from our late 50s until deep in retirement. Then, in late life, medical spending increases outpace decreases in other consumption. Blanchett called it the “retirement smile” because the dollar figures graphed out as a smile.
Now 82, I’ve experienced the effect personally for more than two decades. My wife has experienced the same thing. Things we strived to earn money to buy several decades ago seem silly today. (Note to younger readers: Rest assured this is not because we lack the imagination or the will to spend money. Nor are we teetering over our graves. It’s just that experiences have become more important than things, and nearby has become a lot easier than far away.)
The retirement smile is real.
And that makes me curious. Is it possible that only people of extraordinary wealth will be spending money on luxury goods in the future?
Demography suggests this is exactly what the future holds. The population of retirement smile-age people is increasing rapidly. But growth among those who are the most avid consumers will be slow.
According to a Census bureau study, for instance, the population of people 65 and older will grow from 49.2 million in 2016 to 94.7 million in 2060, a stunning increase of 92.3 percent. While the older population will still be outnumbered by the working-age population, those 18 to 44 will grow by only 14.4 percent, and those 45 to 64 will grow by only 15.1 percent.
These figures count the mostly retired 65 and up crowd. The figures ignore the 55- to 64-year-old group that is starting to change its spending habits and reduce consumption. According to the non-profit KFF foundation, this group currently accounts for about a quarter of the working-age population and 13.1 percent of our total population in 2021.
Working spenders account for a slow-growing 46.5 percent of our population. The retirement smile population, meanwhile, accounts for a rapidly growing 30 percent of our population.
Another study made projections using the base figures cited above. Then they made different assumptions for immigration. Under their low and zero immigration assumptions, our 65-plus population grows even larger relative to the working population.
Does this mean luxury spending will disappear?
That would be an overstatement.
It does suggest that luxury spending will become much more subdued as America continues to age.
Me, I may have found a specific clue. It was at the Mission Golf Carts shop in Marble Falls. Months ago, the showroom featured a luxury Italian golf cart, a two-seater, with a tiny refrigeration unit built into the dashboard. Priced a tad over $36,000.
When I returned a few weeks ago to buy new batteries for my old, but restored, EZ-GO it was still there.
Perhaps it’s a sign.
Related columns:
Scott Burns, “The Retirement Spending Smile Is Real,” 11/01/2019: https://scottburns.com/the-retirement-spending-smile-is-real/
Sources and References:
DQYDJ website net worth percentile calculator for the United States: https://dqydj.com/net-worth-percentile-calculator-united-states/
Census Bureau, Current Population Reports: “Demographic Turning Points for the United States: Population Projections for 2020 to 2060: https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1144.pdf
KFF state health facts: Population distribution by age https://www.kff.org/other/state-indicator/distribution-by-age/?currentTimeframe=0&sortModel=%7B%22colId%22:%2265%2B%22,%22sort%22:%22desc%22%7D
Census Bureau, Current Population Reports: “A Changing Nation: Population Projections Under Alternative Immigration Scenarios,” https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1146.pdf
YouTube, “USA Population Pyramid 1950-2100” https://www.youtube.com/watch?v=t6HFi_4M1Fo
“The Millionaire Next Door: The Surprising Secrets of America’s Rich” on Amazon: https://www.amazon.com/The-Millionaire-Next-Door-audiobook/dp/B0000547HR/ref=sr_1_1?crid=3FV82ENCVGNZG&keywords=the+millionaire+next+door+book&qid=1696265982&sprefix=The+Millionaire+%2Caps%2C206&sr=8-1
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Photo: (c) Pattie Freeman
(c) Scott Burns, 2023