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New York Times: Retirement May Actually Cost Less Per Year as Average Spending Declines Over Time

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Do you have enough saved for retirement? If you ask the average senior, their answer will likely be no. A steady stream of articles, including some we’ve included here on the AgingOptions blog, contributes to the fear shared by many U.S. adults that they are in real danger of running out of money as they age.

Average Retirement Spending Does Not Remain Constant

It’s probably wise to be concerned and smart to save, but as this recent New York Times article suggests, some of those fears might be a bit overblown. That’s because of research that shows what many online retirement calculators tend to miss: annual retirement spending does not typically continue in a straight-line year after year, nor does it increase. It actually tends to decline over time, which means many retirees might be better off than they think.

Writing in the New York Times, columnist Peter Finch says, “It’s the question at the heart of so much retirement planning: How much money will I need in savings when I’ve stopped working? To arrive at that number, many people start calculating an estimate of what they will need to live on each month. The figure they come up with often relies on a popular rule of thumb: the so-called 4 percent rule.” This common shorthand postulates that, in a nest egg made up of 60 percent stocks and 40 percent bonds, a retiree can safely withdraw 4 percent per year and see their money last at least 30 years. These withdrawals, combined with Social Security and other income sources, become the basis for many people to calculate how much income they’ll need as they grow older.

Is the “4 Percent Rule” a Valid Retirement Spending Guide?

“There’s a lot of research to suggest that following the 4 percent rule — or something close to 4 percent — is a good way to make your savings last,” says Finch. “This approach is at the heart of many popular online retirement calculators. But does retirement spending actually work that way? Do retirees really spend a fixed amount each year for the rest of their lives? They do not, many financial advisers and academics say.”  One financial planner quoted in the Times article said he has been practicing for 35 years, and in that time, “I can tell you none of my clients has ever spent on a straight line.”  Our spending habits and needs will change over time, and for most people they will generally tend to go down. “Here’s one reason that’s important,” says the New York Times: “You may be closer to having enough money to retire than you think.”

The reasons for this decline in spending have to do with our age and our overall energy level as we get older and enter various phases of retirement. One of the most popular ways financial planners describe these phases, coined by a certified financial planner named Michael K. Stein, is “your Go-Go years, your Slow-Go years and, finally, your No-Go years.”  It turns out that this pattern of lower spending is not just a myth: it’s backed up by data from the Bureau of Labor Statistics. These figures from the Bureau’s Consumer Expenditure Survey show that, for households headed by 55-to-64 year old adults, the mean spending in 2017 was $65,000. For the next older group, the 65-to-74 year olds, spending dropped to $55,000. Among the oldest households, mean spending fell to $42,000. “Housing costs remained steady and health care expenses increased,” explains Peter Finch, “but nearly every other category — transportation, entertainment, clothing, food and drink — declined sharply.”

This pattern was even more pronounced among high-net-worth households, says a report from J.P. Morgan Chase Asset Management. As a result, said one Chase retirement strategist, traditional financial planning tools built around a projected steady increase in household spending “could overstate spending in late retirement by 30 percent or more.”

Putting the Smile in Retirement Spending

Some financial planners point out that while retirement spending doesn’t go up at a steady pace, it doesn’t necessarily go down steadily and predictably either. The New York Times article said the graph resembles a smile: “it starts high, gradually declines, and then increases toward the end of a retiree’s life.”  That late-in-life rise is almost always related to rising health care costs, say the analysts, but even so, “retirees in their 70s and 80s still tend to spend less than when they first quit working.”  Some planners say that this analysis suggests retirees can spend a bit more freely early in their retirement years and do the things they enjoy while they have the vigor to truly enjoy them. But others are more reticent, worried that too much spending early on puts retirees in a dangerous hole, especially in the event of a market downturn.

The answer in our view here at AgingOptions is to sit down with an objective professional planner and prepare a Retirement Dashboard. This powerful and versatile tool can show you where some of the danger zones lie in your retirement planning and give you the ability to take action in a well-informed way. It also allows you to run through various “what if” scenarios so you can see how your nest egg might perform at various spending levels over time. As the New York Times article puts it, “Planning your retirement around the ‘Go-Go, Slow-Go, No-Go’ spending pattern does require a higher level of risk tolerance, advisers agree. It also takes some discipline. You can’t just go on autopilot. You need to track carefully how much you’re spending and be prepared to adjust if necessary.” This is precisely what a Retirement Dashboard allows you to do. Contact us and we can refer you to a trusted adviser to help you.

Retirement is About More than Money

We think the New York Times article makes some valid points. What’s missing, though, is a broader, more comprehensive approach to the problem. Retirement planning is about far more than money, which is why it’s essential that you look at your financial picture as just one piece of a puzzle. A well-rounded retirement plan must deal with money issues but also the other critical facets of retirement living: your housing plans, your legal protection, your medical coverage (both short and long-term) and communication with your family. These elements of a healthy retirement plan work together, as part of an interconnected and interdependent whole.

Fortunately, there’s one retirement planning strategy that does exactly that: a LifePlan from AgingOptions. And there’s an easy and enjoyable way to find out about LifePlanning, without cost or obligation, and that’s to join Rajiv Nagaich at a LifePlanning Seminar. They’re free, fun, and information-packed, and there’s probably one near you. Visit our Live Events page where you’ll find a complete calendar of upcoming seminars, along with a simple online registration form. Whether you’ve been preparing for retirement all your life or just started yesterday, you’ll find a trove of useful information at a LifePlanning Seminar, so we hope to see you at a live event soon. Age on!

(originally reported at

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