Americans 65 and older account for record share of spending and are less susceptible to interest rates
4 min
Why has consumer spending proven so resilient as the Federal Reserve has raised interest rates? An important and little-appreciated reason: Consumers are getting older.
In August, 17.7% of the population was 65 or older, according to the Census Bureau, the highest on record going back to 1920 and up sharply from 13% in 2010. The elderly aren’t just more numerous: Their finances are relatively healthy and they have less need to borrow, such as to buy a house, and are less at risk of layoffs than other consumers.
This has made the elderly a spending force to be reckoned with. Americans age 65 and up accounted for 22% of spending last year, the highest share since records began in 1972 and up from 15% in 2010, according to the Labor Department’s survey of consumer expenditures released in September.
“These are the consumers that will matter over the coming year,” said Susan Sterne, chief economist at Economic Analysis Associates.
“Our large share of older consumers provides a consumption base in times like today when job growth slows, interest rates rise and student-debt loan repayments begin again,” she said.
Seniors’ high spending propensities reflect health, wealth and perhaps lingering psychological effects of the pandemic.
“All my life it was, save for this, save for that,” said Maureen Green, 66, of Cape Cod, Mass. “Now there’s money in the bank and I’m spending in ways that bring me closer to friends and family than I did before.”
Green, a real-estate agent with four grown children living across the country, estimated she is spending 25% more and twice as much time traveling now compared with 2019. She recently traveled to Syracuse, N.Y., to catch a photo exhibit with friends, and toured Rhode Island with her son and his girlfriend.
“The one million Americans who didn’t survive Covid—that’s part of it. That taught me not to let time go by because before I know it, that time won’t be there anymore,” she said.
“The lifestyle of the senior has changed dramatically—they’re more active than ever,” said Marshal Cohen, chief retail adviser of Circana, a research firm specializing in consumer behavior. That has expanded the menu of recreation on which to spend, he said. “They’re riding e-bikes, they’re hiking, they’re traveling. And they’re doing these things for longer than they’ve ever been done.”
The average household led by someone age 65 and older spent 2.7% more last year than in 2021, adjusted for inflation, according to the Labor Department, compared with 0.7% for under-65 households. Spending by older households is up 34.5% from 1982, compared with 16.5% for younger households.
Comparable data isn’t available for 2023. However, consumers older than 60 reported spending 7.9% more in August than a year earlier, compared with a 5.1% increase among those age 40 to 60 and a 4.6% gain for younger consumers, according to a survey by the New York Fed. The data aren’t adjusted for inflation.
The growing yen to spend by the elderly is amplified by their sheer numbers. The unusually large cohort of baby boomers, the youngest of which are 59, are reaching their retirement years en masse.
American Cruise Lines, which gears its cruises toward older consumers, said it is seeing double-digit sales growth this year, driven largely by boomers. The Guilford, Conn., company this year added three ships to its fleet and expanded its season by a month for some popular routes.
“River cruising has traditionally attracted an older audience, and with more boomers retiring each year, we see both a rapid rate of growth and demand for longer experiences,” said Charles B. Robertson, the company’s president and chief executive.
Another factor in the elderly’s favor: relatively strong finances. Americans age 70 and older now hold nearly 26% of household wealth, the highest since records began in 1989, according to the Federal Reserve.
While economists still see a relatively high probability of recession in the coming year, Ed Yardeni, president and chief investment strategist of Yardeni Research, isn’t one of them. An important reason: By the Fed’s reckoning, baby boomers alone have now amassed $77.1 trillion in wealth. “There’s a $77 trillion-wide hole in the theory that consumers’ running out of pandemic savings will sink the economy,” he said.
They have less consumer debt, minimal student debt and are more likely to own their homes outright. Many of those who have mortgages refinanced at the unprecedented low in mortgage rates after the pandemic hit. They are also less likely to need to move due to an expanding family or a new job than Gen Z and Millennials, shielding them from the impact of rising housing costs.
Retirees also received an 8.7% cost-of-living-adjustment bump to Social Security payments in January, the largest single-year increase since 1981, and an automatic adjustment to offset last year’s 9.1% inflation peak.
These factors have cushioned seniors from the twin scourges of inflation and high interest rates. And since most of them are retired, seniors’ spending is less vulnerable to the rise in unemployment that many economists anticipate in coming quarters.
Subscription demand for the Cincinnati Opera’s summer festival this year was surprisingly strong and driven by older patrons, said Todd Bezold, director of marketing.
“Despite the multiyear trend in subscriptions going down, down, down in every art form, we went up this year—by 3%,” he said. That jump in demand came despite a sharp rise in ticket prices to account for several years of inflation. “The vast majority of our subscribers are baby boomers; we know that much.”
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
