Discretionary spending among older Americans has underperformed compared to other age demographics over the past twelve months, even as top earners in this group saw significant wealth accumulation. However, two upcoming policy measures—a temporary tax relief provision and the 2027 Social Security cost-of-living adjustment—could provide limited relief to their purchasing power, according to a new analysis from the Bank of America Institute.
The financial institution examined transaction records from credit and debit cards, revealing that households led by baby boomers and traditionalists have experienced slower growth in non-essential expenditures than younger cohorts during this period. This shift reverses the trend observed in 2022 and 2023, when older adults outspent other groups on discretionary items.
Wealth Concentration and Spending Trends
The report attributes this slowdown in part to uneven wealth distribution among seniors. Using 2025 data from the Federal Reserve Survey of Consumer Finances, researchers determined that the wealthiest 10% of households headed by individuals aged 65 or older control roughly two-thirds of total net wealth in this demographic. As a result, broader market gains in stocks and assets have done little to boost spending for most older consumers.
Meanwhile, wage growth, particularly among working-age households in lower and middle-income brackets, has been the primary driver of overall consumer spending in 2026. In contrast, older adults rely on a more diverse set of income streams, making them less responsive to rising wages.
Income Diversity and Spending Disparities
Federal Reserve data illustrates that as households age, earnings from employment or self-employment decline, while income from pensions, Social Security, and investment returns becomes more prominent. Bank of America’s analysis further highlights stark differences within older cohorts: Households over 62 that rely only on Social Security have average income and discretionary spending close to half that of their peers who drawing from Social Security, pensions and employment combined.
Policy Measures Offering Relief
The report identifies two near-term policy changes that could ease financial pressures for seniors: the upcoming Social Security COLA and a temporary tax deduction. The One Big Beautiful Bill Act, enacted last year, introduces a one-time deduction of up to $6,000 annually for taxpayers aged 65 or older, applicable through 2028. This benefit phases out for single filers earning over $75,000 and joint filers exceeding $150,000 in modified adjusted gross income.
The Social Security Administration has confirmed a 3.6% cost-of-living adjustment for 2027, effective January 1. While this represents the largest increase since 2023, it remains below the 8.7% hike granted in 2022. If inflation moderates in 2027, as widely projected, the adjustment could exceed actual price growth, providing meaningful real-income gains for Social Security-dependent households.
Disparities in discretionary spending between older adults and the broader population are most pronounced in categories such as electronics, travel accommodations, dining out, apparel, home furnishings, and airfare. While some differences stem from shifting priorities across life stages, the report suggests that stronger Social Security increases in 2027, coupled with continued tax relief, could help older households close the spending gap with younger demographics.
Given the wide variation in income and spending patterns among those aged 62 and older, industry professionals must adopt targeted approaches. Asset-rich retirees will have distinct needs compared to those primarily reliant on Social Security. Additionally, distinguishing between baby boomers (born 1946–1964) and traditionalists (born before 1946) can refine strategies to address each group’s unique circumstances.
The Bank of America Institute emphasizes that its findings are based on anonymized transaction and survey data, cautioning that broader economic conditions must also be considered. The analysis shows the financial challenges faced by many households past their peak earning years, especially those dependent on fixed-income sources like Social Security.
