How much people spend after retirement

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How much will you actually spend in retirement? That depends on a lot of factors, including your retirement goals and lifestyle, healthcare needs, and caring for family members. Many financial advisors cite the “80% rule”, which states that you will need 80% of your preretirement income after you retire. But while that’s a general rule of thumb, it may or may not apply. Will your actual spending increase, go down, or stay the same?

One useful way to get an idea is to examine the experiences of actual retirees. The Employee Benefit Research Institute (EBRI) recently issued a detailed report on how retirees’ spending changed shortly after retirement.

The EBRI used spending pattern data collected from a survey of 5,000 randomly selected households, and cross-matched that data with workforce status data from a nationally representative sample of U.S. households with individuals over age 50. The analysis revealed some surprises. Typically, household spending dropped shortly after retirement, but not as much as some expected. And for many households, spending went up post-retirement.

During the first two years of retirement, median household spending was 5.5 percent lower than before retirement, and 12.5 percent lower by the third or fourth year of retirement. By the sixth year of retirement, median household spending was 14.1 percent lower than preretirement.

Singles’ retirement spending decreased more in percentage terms than married couples. For couples, spending fell by 10.3 percent in the first two years of retirement and was down 16 percent by year six. For singles, the decreases were 11.8 percent and 19 percent, respectively.

However, 45.9 percent of households spent more during the first two years of retirement than what they had spent just before retirement. By the sixth year of retirement, 33.4 percent of households were spending more than before retirement. The households spending more in the first two years of retirement were not just high-income households; the EBRI analysis showed that they were distributed across income levels.

Some other major findings from the EBRI report are:

  • In the first two years of retirement, 39.3 percent of households spent less than 80 percent of their preretirement spending. By the sixth year of retirement, 53.1 percent of households did so.
  • Of the spending categories examined, transportation spending fell the most in the first two years of retirement. Median spending on transportation went down by 25.1 percent in the first two years of retirement, but the reduction during following years was small.
  • In the first two years of retirement, 28.0 percent of households spent over 120 percent of their preretirement spending levels. By the sixth year of retirement, 23.4 percent of households were still doing so.
  • Households spent little on durable goods just before and after retirement. Average spending on durable goods went from $618 preretirement to $483 after two years of retirement and $408 after six years.
  • The median household mortgage payment was $2,198 before retirement but none after retirement.

The EBRI report has more detailed breakdowns. It is useful reading if you want to know how people’s spending actually changes in the first years after retirement.

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