Multiple surveys show that too many Americans have not saved enough for the retirement lifestyle…
For people close to retirement who are feeling anxious about having sufficient funds, there’s some good news. A survey by T. Rowe Price of new retirees found that most are doing well, both financially and emotionally, and that retirees are less anxious than those who are approaching retirement. The survey also indicated that the retirees, who had been retired for one to five years, weren’t spending as much as they had expected, but were satisfied with their retired lives nevertheless.
A commonly repeated rule of thumb is that you’ll need 80% of your pre-retirement income after your retire. Participants in this survey, however, had a median net worth of $473,000 and were spending on average 66% of their pre-retirement income. Nonetheless, 57% said they were living as well as or better than before they retired, and 85% indicated they didn’t need to spend as much as they did before they retired to be satisfied. In fact, 65% said they enjoyed not spending as much, and considered it a relief from “keeping up with the Joneses”. While almost half of workers close to retirement expected to reduce their living standard after retirement, only 35% of retirees reported they actually had to change their lifestyle.
The 80% estimate assumes that you’ll no longer be saving 10% of your income for retirement, and also no longer paying around 10% in Social Security and Medicare taxes. The survey results show that your expenditures may go down even more. For one thing, your kids will likely be out of the house. Estimates are that it costs around $250,000 to raise a child to age 18; college tuition can add $100,000 or more to that. Additionally, many retirees take care of major expenses before they retire, such as paying off the mortgage and making expensive home repairs and renovations.
Although many retirees spend more on leisure, such as travel and dining out, these are discretionary expenses that can be adjusted depending on circumstances. Of the retirees in the survey, 60% said they would adjust their spending level to preserve the value of their savings. Overall, 89% of retirees reported feeling very or somewhat satisfied with retirement so far.