Insights on Economic Well-being at Older Ages from Analyses of Household Spending

Although income is a widely used measure of economic well-being, it is an indirect or proxy
measure because it differs from consumption, a direct measure, due to saving or dissaving. At
older ages, especially with the shift of pension plans from the defined benefit to the defined
contribution type over the past decades, the ability to finance consumption out of savings is
particularly important. This chapter begins with a brief overview of theoretical considerations for
using household spending data to study consumption and learn about economic behavior and wellbeing. Next, we present empirical evidence based on longitudinal data on spending patterns at
older ages. We show how spending changes at common retirement ages, the evolution of spending
over the remainder of the life cycle, shifts in the composition of spending as people get older and
how these patterns vary by demographic characteristics. We then turn to examples of using
spending data to learn about economic well-being, such as poverty status, and economic
preparation for retirement. We conclude with a discussion of avenues for future research.