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By the age of 50, Britain’s top quarter of earners will have spent £21,000 on alcohol and tobacco and just over £70,000 on clothing and shoes. This compares to the £14,000 and £21,000 spent by Britain’s bottom quarter of earners on the same items. This information comes from the latest Tilney report, “The Cost of Tomorrow”, which is based on the latest Family Spending Survey data from the Office for National Statistics.

According to the study, by the time an average adult hits their half century, the household will have spent its first £1m, and Britain’s top quartile earners will have splashed out an average of £1.4m.

With higher disposable incomes, the wealthy spend a quarter of their outgoings (£342,000) on leisure activities including entertainment, holidays and eating out — three-fifths more than an average household.

How do a person’s spending habits change throughout their lives?

As lives change, so household spending habits naturally adjust too. In their 20s, most people are getting their careers going and starting families, so spending is typically high. As incomes rise and families grow, spending rises too, peaking between 30 and 49 years old. Nests then gradually empty, mortgages reduce and outgoings begin to fall. People typically spend less when they are preparing for retirement. Wealthy individuals share the same spending patterns but spend more at each stage than others.

Spending doesn’t stop at 50, with average households splurging another £1m over the next 25 to 30 years, taking the lifetime total up to £1.9m. The total lifetime spend for top earners rises to £2.8m.

What do people spend their money on?

At every stage of life what people spend their money on changes. Housing, for example, takes up a steadily smaller share of the household budget over time. One-third of under-30s’ outgoings is devoted to keeping a roof over their heads, compared to a little over a quarter among over the 65s. And although younger people might think they are having more fun than oldies, entertainment, eating out and holidays account for an ever greater share of spending when people reach 65.

How do spending habits change in retirement?

From 65 onwards, when income from work diminishes, the top quarter of UK earners can still expect to spend £683,000 as a household over the rest of their lives; 63 per cent more than the £420,500 average. The pattern of this spending is also radically different. For the wealthiest 25 per cent of Britons only a quarter is spent of housing with far more on having fun, of which a remarkable £74,000 will be on holidays.

But do people’s aspirations reflect reality?

The vast majority of those over 45 believe they will either improve or maintain living standards in retirement, but Tilney’s evidence shows they are underestimating their retirement budget by almost £100,000. The average household expects to spend £16,456 per year, but will, in fact, spend £26,500 every year between the ages of 65 and 75. For wealthier individuals, annual spending for the first 10 years of retirement is £43,300.

The report found that people tend to be pretty accurate in their predictions for roughly how much they will spend on things like housing and food and drink, but when it comes to accumulating goods versus enjoying experiences, people overestimate their likely appetite for goods and underestimate their likely spending on fun. The data highlight the fact that many people are not putting aside enough money for their later years.

Copyright The Financial Times Limited 2017. All rights reserved.
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