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Expecting to Spend Less in Retirement? You Might be Surprised

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Most seniors are convinced that, once they retire, their spending will almost certainly go down, not up. But what if that assumption is wrong?

This article recently published on the website Motley Fool is important for just about anyone who is beginning to get serious about retirement finances. Written by Motley Fool contributor Maurie Backman, its title shouts a loud and clear warning. “Attention, Seniors: You Might Spend More in Retirement, Not Less.” Backman opens his article by stating, “Most people count on lowering their expenses in retirement, but this doesn’t always happen.  And if you’re not prepared, you could run into trouble down the line.”

There was a time in previous generations when retirement came with a pension, one that in many case (especially when combined with Social Security) was sufficient to meet a retiree’s financial needs. But for most workers those days are gone forever. For many years, says the Motley Fool article, we’ve been admonished to save as much as possible for retirement in order to augment Social Security, which only replaces an average of 40 percent of a retirees’ working income. Typical retirees, experts say, will need 70-80 percent of their pre-retirement income in order to sustain their lifestyle. “It’s up to us, as individuals, to fill that gap,” warns author Backman.

As if that weren’t daunting enough, here’s the sobering news: your level of retirement spending may surprise you. Newly reported data from the Employee Benefit Research Institute (EBRI) “found that about 46 percent of households spent more money, not less, during their first two years of retirement.” For more than one-quarter of retiree households, spending was actually 20 percent higher after retirement than before.

This boost in spending didn’t just disappear after the first few years of retirement. Six full years into retirement, about one-third of households were still spending more than they did before they retired. This pattern seemed consistent across all income levels, not just among wealthy households.  Motley Fool’s Backman says, “While a fair amount of this extra spending no doubt relates to entertainment and leisure (after all, retirees have far more free time on their hands and need to occupy it), certain expenses in retirement are far less negotiable. And if we don’t save enough to cover those costs, a lot of us will be headed for trouble.”

The Motley Fool article is quick to point out that this pattern of higher spending in retirement is hardly inevitable. About half the households in the EBRI database do spend less than they did before retiring, for several reasons: they’re no longer contributing to a 401(k), for example, and they’re no longer paying costs associated with commuting. Still, some costs are very likely to climb in retirement, and seniors need to be prepared. Healthcare, for example, consumes about $500 of household income every month for the average adult aged 65-74 (this according to the Bureau of Labor Statistics).  But those costs can skyrocket if you face a health crisis later in life, and they don’t include long term care expenses.

What about housing? Backman writes, “Many people assume their housing costs will go down in retirement because they’ll have paid off their mortgages by then, but more and more seniors are entering retirement with mortgage debt hanging over their heads.”  In 2011 more than 30% of homeowners 65 and older were still carrying a mortgage. Beyond the mortgage, rising taxes and increasing maintenance costs can often be overlooked when creating a financial plan for retirement, and these and other expenses can easily sneak up and bite the unprepared retiree.

What does a retiree do about this prospect of rising living costs? The Motley Fool’s advice is pretty basic: “save more.” Even if you haven’t been a retirement saver, start now and set aside what you can. But as important as saving is, we at AgingOptions take a more well-rounded view of planning for retirement, because retirement is not just about finances. Every piece of the retirement puzzle – the financial plan you set in place, the legal framework you need, the housing decisions you make, the medical coverage your health demands, and the open, honest communication your loved ones require – has to fit together into a seamless whole. We call this approach a LifePlan, and with your LifePlan in place you’ll be far better equipped to meet every challenge retirement can throw your way, including the challenge of rising costs.

So if this talk of the high cost of living in the Motley Fool article leaves you feeling uneasy, we urge you to come to one of our LifePlanning Seminars and learn more about the AgingOptions approach to this vital topic. If you’ll invest just a few hours of your time hearing about the power of retirement planning done the right way, we’re confident you’ll gain not only invaluable knowledge but true peace of mind. Interested in taking the next step?  Simply attend a free seminar – no risk or obligation whatsoever. Click here for dates, times, locations and online registration, or contact us during the week and we’ll gladly assist you.

(originally reported at

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