Seniors overspend on mortgage, credit cards

• Two areas of debt among older Americans concern the experts
• Mortgage/home equity debt is increasing dramatically among seniors ages 65 to 74
• Seniors are also taking on more credit card debt

How do you spend your money? Well, if you're like the average older American you might be spending far too much on mortgage debt and credit cards. Plus, you might want to take a closer look at how much you're spending on hobbies, cars, pets and other discretionary expenses, according to a new report from the National Center for Policy Analysis (NCPA), a non-profit, non-partisan public policy research organization based in Dallas.

Consider: The percentage of 65- to 74-year-olds who report having a mortgage or home equity loan payment increased from 21% in 1989 to nearly 37% in 2010, according to Pamela Villarreal, author of How Are Seniors Spending Their Money. And for those age 75 and older, the percentage of mortgage or home equity loan holders increased from just 6% to 21% during the same time.

Not surprisingly, more seniors are spending a greater share of their money on mortgage or home equity loan interest. In 2012, for instance, interest payments were 4.3% of overall expenditures for 65- to 74-year-olds, up from 2.7% of expenditures in 1990. And for those 75 and older, the increase was greater, from less than 0.7% of expenditures in 1990 to 2% in 2012.

Seniors are also taking on more credit card debt since 1989, according to the NCPA. Consider: The average credit card balance for 65- to 74-year-olds in 2010 was $6,000, compared with just $2,100 in 1989, and for those age 75 and older, the average balance was not even measurable in 1989, but had ballooned to $4,600 by 2010.

Overall, seniors tend to spend the greatest percentage of their expenses on housing, which includes maintenance, property taxes, insurance and mortgage interest. Housing represents 32.8% of expenditures for 54- to 74-year-olds, and 36.7% for those age 75 and older.

Seniors are also spending more of their hard-earned money on health care, though it's not one of the fastest growing expenditures, the NCPA reports. Indeed, health care is the fourth-largest category of spending for 65- to 74-year-olds (11.4% of expenditures) and the second largest category for those age 75 and older (14.7% of expenditures).

Housing might represent the largest expense for seniors, but the fastest growing expenses for those ages 65-75 are: No. 1. miscellaneous entertainment such as exercise equipment, photography equipment, campers, boats and electronic video games (that's grown 9.8% annually since 1990), and No. 2. pets and hobbies, which has averaged 5.8%.

In addition, seniors are splurging on new cars and trucks. According to the Bureau of Labor Statistics' Consumer Expenditure Survey, in both age groups, those ages 65 to 74 and those 75 and older, new and used cars and trucks are also among the top five fastest-growing expenditures. That category has been growing at a rate of 6.5% since 1990, and it now represents 2.6% of expenditures.

And whoever said you can't teach an old dog new tricks doesn't know a thing about older Americans. Education is a fast-growing expenditure category, especially for those ages 65 to 74: It's grown at a rate of 14.5% since 1990, though at 0.5% it represents just a small fraction of total expenses.

So, what do experts make of these spending trends? What advice do they have for you if your spending is anything like that of the average retiree?

Well, as with most things related to money, experts suggests getting a sense of your expenses. Figure out how much you spend on housing, credit card debt, health care, transportation, and the like, and what percentage of your total spending that represents. Averages can be misleading, but it's worth getting a sense if you're overspending relative to other Americans. Remember, too, that your spending and spending behavior are among the few things you can really control.

Also, create – if you don't have one already – a plan to pay your expenses if things don't go according to your financial plan. Having a mortgage in your 60s isn't necessarily bad, but it would be if you don't have the income to support the debt.

Speaking of financial plans, Holly Perez, a spokeswoman for Mint.com and Quicken, recommends that you put in place a debt reduction plan, especially if you have high-interest credit card debt or other loans that are charging more interest than you can possibly make back in investment income.

If you're not yet retired, consider that your spending is likely to look quite different from that of a retiree. "What pre-retirees spend money on is different than retirees," says David Blanchett, the head of retirement research for Morningstar Investment Management. "This has important implications for budgeting and determining how much you have to save for retirement."

Remember, for instance, you'll spend less on insurance and savings for retirement and more on medical expenses in retirement, Blanchett says. So, factor in to your retirement spending plan the fact that health care will represent an increasingly greater share of your expenses over time. Blanchett says the average 65-year-old retiree spends about 10% of their total expenditures on health care. By age 85, however, that percentage jumps to 20%. "Health care costs are the obvious 'elephant in the room' for many retirees, but it's important to remember they are just one component of retirement spending," says Blanchett.

Both pre-retirees and retirees also need to factor inflation in to their spending plans. But don't use the standard Consumer Price Index for All Urban Consumers (CPI-U). Instead, use the Consumer Price Index for the elderly (CPI-E), which tracks households where at least one person is 62 years of age or older. The CPI-E tends to tends to inflate at a higher rate than CPI-U. For instance, from December 1982 through December 2011, the CPI-E rose at an annual average rate of 3.1%, compared with 2.9% for the CPI-U. Other experts argue that you should use an ever higher rate of inflation when projecting your spending needs.

But even though your expenses will inflate at a higher rate than in your working years, your overall total spending is likely to decline, according to Blanchett. "Expenditures tend to decrease in real terms over time," he notes in a recent blog. "The real change in spending actually resembles a "smile" where expenditures increase at a rate that is higher than inflation very early (the go-go years) and very late (the no-go years) in retirement, but decrease in real terms during middle retirement (the slow-go years)." Read Estimating the True Cost of Retirement.

Of course, the bottom line when it comes to spending in retirement is this: "Everyone approaching or in retirement should have a meaningful retirement goal plan," says Bob Curtis, president of PIEtech, makers of MoneyGuidePro financial-planning software. "It doesn't need to be a complicated, comprehensive plan, but requires more than a calculator. There's just no way to provide competent advice without having a holistic picture of an investor's goal and resources."

Robert Powell is editor of Retirement Weekly, a service of MarketWatch.com. E-mail him atrpowell@allthingsretirement.com.