Saving & Retirement

Retiree Statistics: How Spending Decreases with Age

retiree statistics and annual spending trends

When it comes to retirement goals, most folks are trying to save enough to maintain their current standard of living. However, retiree statistics researchers find a different spending pattern emerges over time than what they initially predicted. In fact, these unexpected retiree spending trends may be good news for your current investment plan.

Retiree statistics show a 1% decline in spending each year after retirement, then a curve trending back upwards later on. This phenomenon is now known as the “retirement spending smile.” Understanding why this happens can help you create a realistic retirement savings and investment plan to meet your actual needs. Plus, you’ll avoid unnecessary stress in the short-term trying to save more money than you can realistically spend in retirement.

Retiree Statistics: How Much Money Will You Actually Need?

Everyone plans retirement budgets around their goals and current lifestyle, but is that the best approach? Most retiree statistics experts say after you stop working, you’ll need about 80% of your pre-retirement income to live on. The reason for this is simple: Retirement itself eliminates some monthly expenses — like no more 401(k) or Social Security contributions. Your income tax bill is greatly reduced, along with property taxes in most states for all you homeowners. You won’t need to spend money on your daily commute, work uniforms and other wardrobe expenses, or entertaining your clients.

Furthermore, retiree statistics show many retired Americans (almost 60%) don’t carry mortgages on their homes, eliminating another major monthly expense. That said, the 2008 Financial Crisis changed this equation for millions caught off-guard and who are still feeling its impact. Housing costs now take up a bigger piece of many current retirees’ monthly budgets than in previous years.

How The Retirement Spending Smile Works

David Blanchett, CFP®, CFA, coined a memorable phrase a few years back for describing noticeable retirement spending trends. He quantified the phenomenon after analyzing government data, noting spending decreases 1% annually when retirement begins — and as it progresses. Retiree statistics show a 26% drop in total spending over time, on average. Then as you approach your 84th birthday, your annual spending once again tics upward as healthcare expenditures steadily increase.

Of course, these numbers will vary based on your individual needs. In fact, some households spend far more during the initial retirement years than they did prior to leaving the workforce. This is why it’s crucial to discuss your retirement lifestyle goals with your family as well as your financial advisor.

Retiree Statistics Reveal the Biggest Hurdle: Increasing Healthcare Costs

There are some interesting retiree statistics that show different spending trends depending on your age, location and other influential factors. For example: On average, food expenditures decline 6% during retirement. Retirees tend to cook more meals at home instead of eating out and look for bargains while grocery shopping. Here are some other notable retiree statistics found in the U.S. Bureau of Labor’s Consumer Expenditure Survey:

    • The relative amount spent on insurance decreases with age
    • The budget percentage spent on healthcare nearly doubles between age 55 (8.8%) to 75+ (15.6%)
    • Clothing and transportation spending both decline with age
    • Total annual expenditures for retirees aged 55-64 amount to $56,267; $48,885 for those aged 65-74, and $36,673 for retirees over 75

    Overall, the BLS shows a 13% reduction in average annual expenditures between the 55-64 and 65-74 age groups. After that, another 25% average spending drop occurs between the 65-74 and 75+ age groups. The Bureau attributes these spending reductions to decreased cash outlays in every major category except for healthcare expenses.

Assume Your Real Spending Needs Will Decrease Each Year As You Age

So, what’s the takeaway? Retiree statistics show household expenditures generally fall each year as you age. To avoid over-saving now, splurging too soon after you retire or postponing it altogether, watch these trends closely. Most retirement planners assume your household’s real spending (minus healthcare costs) will fall during your post-working years.

And here’s some good news: You may be able to retire sooner than you originally thought!

Leslie Sullivan
Exclusively covering all finance-related topics, including investing, saving money, estate planning, insurance, lowering your tax burden and everything you need to know about planning a comfortable retirement.
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