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The American economy keeps growing and adding jobs, defying predictions of a recession that has not yet arrived. What is behind the continued growth?

Contrary to predictions about an impending recession, the United States economy continues to grow. The recent Gross Domestic Product (GDP) report showed a 3.8% current dollar increase. After accounting for inflation, the real dollar increase was 2.1%. Moreover, the recent unemployment report showed the country added another 336,000 jobs in September, and the unemployment rate was unchanged at 3.8%. These numbers are not a sign of a recession.

What is causing the American economy to perform better than expected? Unexpectedly, it’s partly because of adults aged 65 and over and people nearing that age spending more money. As a group, seniors are earning more and have less debt than other Americans, giving them more discretionary income, helping to drive economic growth.

Senior Social Security Incomes Rose in 2023

Seniors are often thought of as living on a fixed income. But that is a misconception; their rising income gives them more money to spend. 

In 2023, Social Security benefits increased by 8.7% on average because of Cost of Living Adjustments (COLA) to keep pace with inflation. The increase was the most since 1981, another time of high inflation. Inflation in 2022 exceeded 2021 by a considerable amount, causing the significant jump. 

As a result, people collecting Social Security checks are receiving a $146 per month increase, or $1,752 more annually. The average monthly payment is now $1,827 in 2023 versus $1,681 in 2022.

Inflation has reduced, but economists are estimating another 3.4% increase in 2024, depending on the third quarter’s inflation rate, resulting in a decent jump of about 12.4% higher Social Security benefits. Consequently, seniors are gaining greater flexibility to spend money with their larger Social Security payments.

Retirement Balances are Higher for Seniors

At the same time, the average 401(k) balance for seniors and those in the age group below them is growing. At the end of the third quarter of 2022, average retirement balances were nearly $280,000 for those 65+. People in the 55 to 64 age group were a bit lower at $256,000. 

Balances have been flat in 2023 because of a volatile market. However, the combination of consistent employee and employer contributions and market returns has allowed balances to grow with time. According to Fidelity, Baby Boomers in the workforce continue to save at a high rate of 16.6% toward their 401(k) plans. Also, they usually wait to begin withdrawals, providing more time for growing assets.

The bottom line is that higher average 401(k) balances give older adults more spending power when they start withdrawing from their retirement plans.

Seniors are not Borrowing Money

Importantly, not only is income higher, but debt is lower for seniors. They have been smart about paying down mortgages, not carrying large auto loans, and limiting credit card debt. These are important because lowering monthly expenses while gaining on the income side of the equation has resulted in more discretionary spending ability.

More Mortgages are Paid Off

Over 38% of primary homes are mortgage-free. However, for homeowners over age 65, the share of paid-off homes is even greater at approximately 50%, meaning their monthly expenses for the largest budget item are often $0.

Notably, the percentages vary depending on the state and city. Seemingly, the seniors whose incomes are high relative to the price of their home in small and mid-size metros in more rural parts of states have successfully paid off their mortgages early.

The advantages of paying off a mortgage early are significant. Tiffany McCauley of the Gracious Pantry website told us, “I paid off my mortgage and it’s the best thing I’ve ever done. Not having that monthly bill is life changing. Having the extra cash flow is a lifesaver.”

Moreover, as the largest budget item for most families, eliminating a mortgage payment leads to enhanced financial security and opportunities elsewhere. Heidi Bender of the Tons of Thanks website stated, “I paid off my mortgage several years ago. I didn’t like the feeling of having debt hanging over my family. The advantage is having one less monthly payment. I’m able to invest more money or spend the amount of mortgage payments on other things.”

Other Debt is Lower, Too

Besides mortgages, people aged 65+ are less likely to have car loans. Reportedly, around 34% of the Silent Generation, born between 1928 and 1945, have a car loan, while only half of the Baby Boomers have car loans. This fact indicates they own their cars outright. Also, Baby Boomers and the Silent Generation have lower average credit card balances than Gen X.

The net result is that seniors have more cash to spend after subtracting monthly debt payments from income.

Senior Spending is Driving Economic Growth

After a steep decline during the COVID-19 pandemic, travel by older Americans has experienced a resurgence. Their share of travel was nearly half before the pandemic and has returned to about 37% in 2023. Travel is a top priority for their discretionary money, usually much greater than other choices, and the percentage will probably rise further.

The bottom line is rising income and less debt compared to other groups are giving those aged 65 and over more flexibility to spend on experiences. They are eating away from home at restaurants, cruising, trekking, taking immersive art and history experiences, going on culinary tours, and, in general, are traveling more. Seniors spending on experiences is driving U.S. economic growth.

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