How Spending Habits Really Change After Retirement

[mathjak107]

we spend far more now in retirement . with us time cost money and one thing we now have is time .

we are always going somewhere , doing something or taking the grand kids someplace

 

[donheff]

My spending (not including taxes and DD's college tuition) has stayed pretty flat. Local transportation and yes, durable goods are down, travel is up. The numbers I guesstimated based on tallying a few years of pre-retirement expenses worked out pretty close. I don't even track expenses now, just overall money expended for the year.

 

[Danmar]

I find these studies only useful in the aggregate, perhaps for the design of publicly supported retirement schemes. On an individual basis they are not very useful. Each person should know where they are spending their money before retirement, adjust this (up or down) to reflect the kind of retirement they want, and save accordingly.

As others have mentioned, it isn't always clear if people plan their spending in retirement ahead of time or whether they simply "play the cards they have been dealt" and spend what is available. Whether this is what they want to spend or not. Also, I suspect that most retirees become satisfied with what spending is available. Otherwise, there isn't much they can do about it, other than going back to work?

In our case we spend maybe 30-40% more (after tax) in retirement than while working. This would not include a fair amount spent right out of the gate buying more property and things associated with them. I think it would be fair to say our spending increased to match the funds available and we are quite comfortable with this level at this point.

 

[brett]

Our spending has remained fairly constant however how we spend it has changed completely.

We downsized from a large home to a rental condo. We needed a lock and go. Real estate where we live is going down so no rush to buy. Huge impact to our budget especially when we our things were in storage for seven months and we had no rent to pay.

We travel extensively- often five months of the year. We downsized to one vehicle. No more suits, parking, lunches etc for work. Less dining out when we are in town. We changed our eating habits. We spend more of fresh fruit, veg. We no longer buy/eat prepared foods. We eat much less red meat and more seafood. Our health, weight, and well being is much better.

We buy summer clothes at the end of summer in preparation for our winter trip. We buy winter clothes in the spring when we return in late March/early April.

We buy fewer books because of what we went through in our downsizing exercise. The library is our friend and we are fortunate to have a very good one. Most books that we do buy are donated to the library or given away. We don't keep them hanging around.

Now retired, we do not have to as much forward travel planning. We can now take advantage of last minute travel offers-and we do.

After three, almost four years, we have just increased our after tax budget by eight percent.

I do not believe in the rule of thumb about percentages required/burned in retirement. There are too many individual variables when it comes to income levels and spend.

 

[Bestwifeever]

We spend a ton more money, all on discretionary things. Time is so much greater than money right now for us at mid-60s so we say yes to any suggestions that appeal to us. We could easily cut back and know we will when the things we are spending on stop being fun for us. Life is good.

 

[W2R]

We spend a ton more money, all on discretionary things. Time is so much greater than money right now for us at mid-60s so we say yes to any suggestions that appeal to us. We could easily cut back and know we will when the things we are spending on stop being fun for us. Life is good.

+1

The market has been so great since my retirement in 2009, and it turns out that I can afford to spend a lot more than I had planned on spending due to my portfolio growing by leaps and bounds. Plus a modest inheritance, and now I even have SS, neither of which I had depended on getting.

Honestly I have been trying to loosen the pursestrings, and I am now spending more than I ever did before retirement. Like Bestwifeever, I say "yes" to anything that appeals to me. At first very little did appeal to me, because I was used to living a certain way. I am in my late 60's and awfully set in my ways! So I am working on that.

I even bought my Dream House, something that was unthinkable for me even a few years ago. What a wonderful purchase and I am getting huge satisfaction and happiness for the money. Surprisingly that turned out costing me much less than I anticipated once all was done, so I still need to work on loosening the pursestrings. I am still gleeful that the electric bill is lower at the new house than the old one. I shouldn't care, but I do...

I hope that I am not getting too used to living "the high life", so that I can revert back to former habits easily the next time the market crashes badly.

 

[martyp]

Five years into ER my spending has gone down somewhat. I find I have $400-$500 more each month than I expected. I attribute this to simply moving to a lifestyle and set of interests that just aren't as expensive as when I was w*rking. Fewer fancy restaurants and wine; fewer clothes; just less stuff. More activities like hiking and book clubs and classes that cost almost nothing.

We did replace the roof and paint the house the first year but I've budgeted for that sort of thing anyway. My commute miles went down but I replaced it with a couple of road trips.

One way to look at this is that just because you have more time doesn't mean you are going to fill it with spending. I also tell everyone that being retired is not like being on vacation. Vacations when I was w*rking was a spending splurge. Not so with retirement.

 

[Cobra9777]

Wow, I'm surprised by all the people saying expenses went up.

I'm 2 years into ER, and our expenses have gone down in a very significant way. But I'm counting income taxes, payroll taxes, college and other expenses for 2 kids, and no more mortgage payment. Perhaps those weren't entirely relevant to the EBRI study, but they are very real and significant reductions for us.

Even excluding those huge reductions, we're still down about 15-20% on other items. Some of this came from the obvious: commuting, clothes, dry cleaning, expensive work lunches. The rest came from DIY services/repairs and simply having time to pay attention to details (cable, phones, energy use, groceries, cash-back CCs, and many others). Also, we still live in a monstrous house, which will be downsized at some point, reducing expenses even further.

I concede that there was a lot of wasteful outflow last several years of working. For example, we lacked the time and energy to cook at home during the week, so we ate out quite a bit. We also paid for lots of services just due to lack of time. It was relatively easy to reel that stuff in and it now keeps me entertained.

Also, DW decided to keep working for a while, so we're not traveling as much as planned. That will certainly change the landscape a bit. Also her health insurance will go up quite a bit more than mine did at retirement. There's also some pent-up demand for hobby-related toys, like upgrading some of the woodworking machines. And we need a new car. So maybe there's hope for me yet.

 

[Options]

An additional point of view (the writer has been retired for many years):

Does Spending Change After Retirement? by Bob Lowry | Olderhood.com

 

[Katsmeow]

5 years after DH retired and I semi-retired, we have been spending a lot less than when we were working full-time (there was one year that was an exception when we had some major one-time purchases) and we have 2 kids in college. We will have college/kid expenses for 2016 and then we will have a significant reduction for 2017 and beyond.

 

[Ronstar]

This is worrisome. Are you absolutely, positively sure that the difference isn't $497.46 instead of the $500.00 you threw out?

The $500 is the projected figure for the end of 2015. I'll know exactly on 12/31.

 

[34rlsa]

I'm happy to see you folks spending more in RE after LBYM for years to reach your goal.

Congratulations and enjoy !!!

 

[Corporateburnout]

18 months into retirement we are tracking $5K less in annual spending excluding taxes than while working. Some expenses like traveling are up and some like clothing and transportation costs are down. We had planned on 100% pre retirement spending so we are pleased to be able to enjoy our free time while spending less.

 

[audreyh1]

Wow, I'm surprised by all the people saying expenses went up.

I'm 2 years into ER, and our expenses have gone down in a very significant way. But I'm counting income taxes, payroll taxes, college and other expenses for 2 kids, and no more mortgage payment. Perhaps those weren't entirely relevant to the EBRI study, but they are very real and significant reductions for us.

Even excluding those huge reductions, we're still down about 15-20% on other items. Some of this came from the obvious: commuting, clothes, dry cleaning, expensive work lunches. The rest came from DIY services/repairs and simply having time to pay attention to details (cable, phones, energy use, groceries, cash-back CCs, and many others). Also, we still live in a monstrous house, which will be downsized at some point, reducing expenses even further.

I concede that there was a lot of wasteful outflow last several years of working. For example, we lacked the time and energy to cook at home during the week, so we ate out quite a bit. We also paid for lots of services just due to lack of time. It was relatively easy to reel that stuff in and it now keeps me entertained.

Also, DW decided to keep working for a while, so we're not traveling as much as planned. That will certainly change the landscape a bit. Also her health insurance will go up quite a bit more than mine did at retirement. There's also some pent-up demand for hobby-related toys, like upgrading some of the woodworking machines. And we need a new car. So maybe there's hope for me yet.

Expenses didn't go up for us, spending did!

Basically, people ramp up their discretionary spending when they have the funds available.

 

[W2R]

Expenses didn't go up for us, spending did!

Basically, people ramp up their discretionary spending when they have the funds available.

+1

(After two longer posts written and lost in response to this, due to not being cautious, I think the above will cover it.)

Oh - - one of the posts was in my cache. Here it is:

A question that often seems to arise in these discussions is what governs the amount a retiree spends?

Is the amount spent equal to one's living expenses?

Is the amount spent equal to the money available to spend?

My outlook on it, is that after meeting one's living expenses, if there is more left to spend, the amount spent on discretionary stuff is governed by free choice.

 

[athena53]

We downsized a year after I retired and had bigger-than-expected expenses related to that, both fixing up the old house and the one we bought, plus a few expensive, unexpected repairs.

Other than that: health insurance premiums definitely up. Clothing down- the tailor who made me a few items of business clothing every year definitely lost out. Travel way up, but we had two family weddings this year (both road trips with overnight stays, one we brought DS, DDIL and the Munchkin and rented an SUV because babies have lots of Stuff) and a wonderful trip to Iceland. Investments were doing well and our other expenses were modest; travel and family are big priorities for us.

Post-downsizing: mortgage and utilities down, groceries and alcohol down (we're using Costco for meat and alcohol now), gasoline up (new place is further away from many things). Overall, definitely less, and it would be significantly less were it not for travel, and that's an item we can adjust if necessary.

 

[rodi]

We're tracking 100% of pre-retirement spending - including taxes. But that also includes the big "once in a lifetime" trip (plus some in-budget smaller vacations) and the higher than expected medical bills. And it also includes what is likely, an overpayment of taxes based on my test run of taxes using last years TT. (I'm still getting an idea of how things like HSA contributions, etc have a big impact on taxes.)

I was surprised that we weren't higher in spending given the 9 week Europe trip for a family of 4.

 

[Danmar]

+1

(After two longer posts written and lost in response to this, due to not being cautious, I think the above will cover it.)

Oh - - one of the posts was in my cache. Here it is:

Well said, I agree. In our case spending is determined by funds available. Turned out that prior to retirement, things worked out better than expected. This provided more funds than we strictly needed. Simple solution was to spend and give more in retirement.

After a while though you tend to fall into a bit of a "spending groove" and extra funds would probably be given away.

 

[petershk]

I EXPECT to spend more but won't worry about it much. What I do worry about is HAVING to spend more than I can .

From tracking my own expenses over the years it can fluctuate for many reasons but the primary driver of spending change is income change.

When I first got my current job I was making quite a bit less than I am now. DW and I saved over 50% post tax... Closer to 60% now, but that's nearly a doubling of actual spending. Almost all of that is going from 1650/mo in rent to 4250/mo in mortgage.

I suspect that's true for most people... What I use more in planning is flexibility.

We can cut spending 20% pretty easily (can also add 20% ). If we need to cut more, we'll move. Since we're in a high cost area it's not hard to cut mortgage by 50%. So if I have a plan that allows me to cut my monthly expenses by 50% ish, and I plan a 3% SWR... Even at 40 with 2 kids I'm not that worried... Though it's taken a lot of planning and somewhat useless over thinking to get to that not worried state

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[FIREd]

When DW stopped working 6 months ago, our spending went way, way down. Taxes, including income and payroll taxes, represented more than half of our expenses when she was working. Taxes fell nearly down to zero after she retired. Instant 60% spending cut. After we move back to a lower cost of living area in a couple of years, our remaining expenses will be further cut in half - though our spending might not (more money for fun stuff).

 

[Alan]

Likely true for the folks extending most of their working lifestyle into retirement. But for folks who RE and change their lifestyle, their personal historical spending data may not be as useful and accurate in predicting retirement spending as you say.
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This board is full of folks who made or plan to make significant lifestyle changes in retirement. Probably much more so than the overall population of retirees.

+1

Most years we've been spending more than our last few years working too. For the reasons you mentioned above plus we've now got the time to travel, expand hobby interests and just plain ole have fun. So that's what we're doing.

Folks actively posting on this board often seem to run counter to the overall population of retirees or upcoming retirees. This frequently shows up in pre-retirement saving patterns (LBYM or not) and the desire to cease working. I'm starting to think we might also be a different population in terms of post-retirement spending patterns.

We spend a ton more money, all on discretionary things. Time is so much greater than money right now for us at mid-60s so we say yes to any suggestions that appeal to us. We could easily cut back and know we will when the things we are spending on stop being fun for us. Life is good.

The above posts cover my thoughts and experiences as well.

We retired 3 years after the last child graduated from college and came off the household payroll. We are now about to enter our 7th year of retirement and our annual spending continues to be much higher than those last 3 years of working, mostly all due to discretionary spending. I don't see the spending levels coming down anytime soon, while we can afford our lifestyle we will keep on at this level.

Taxes are down, but not as much as they might have been since I've been doing Roth conversions each year, and this last 3 years health costs are way up due to a combination of premium increases and health issues.

It's all good

 

[Jerry1]

You all are making me nervous. I expect that I will spend significantly less in retirement than I do now while working. I don't plan on going all mustachian but I expected that spending less in retirement was a way to get to retire early. I've done a lot of planning and I think all the things I've cut out of the working budget to get to a retirement budget are reasonable, doable and worth giving up in order to retire. However, if I somehow get a bug to do things that I've never done before (like travel for example), my current plan will be busted pretty quick.

Don't get me wrong, I've budgeted for entertainment, eating out and some other discretionary items, but it sounds like I'm in trouble because, I plan on spending about 25% less in retirement than I do now working. Note that I wouldn't say I'm living large, but I don't think much about my spending either. I always figured as long as I met my savings goal, that spending was the benefit of working.

I'm I completely missing something? Is there no one here who cut their spending significantly in retirement?

 

[GravitySucks]

I'm I completely missing something? Is there no one here who cut their spending significantly in retirement?

Me! It's not as low as I planned, but no where near what it used to be.


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[Independent]

This is the way I see it:

A: 40 - something couple with jobs, kids at home, and a mortgage.
B: 58-61 year old empty-nesters with paid off mortgage.

How much should they expect to spend in retirement?

A: Quite a bit less than their current gross income. Their taxes will be lower, their kids will be gone, the mortgage will be gone, and they don't need to contribute to retirement saving.

B: Something pretty similar to their current, after-tax spending. They should look at details like health care, commuting costs, retirement fun, ... to be sure.

I see the article in the OP addressing couple B.
The answer for couple A is a lot different.

 

[fritz]

Additional points from the EBRI report were seen as follows:

• In the first two years of retirement, 2 in 5 households (39.3 percent) spent "less" than 80 percent of their preretirement spending. By the sixth year of retirement, a majority (53.1 percent) of households did so.

You all are making me nervous. I expect that I will spend significantly less in retirement than I do now while working. I don't plan on going all mustachian but I expected that spending less in retirement was a way to get to retire early. I've done a lot of planning and I think all the things I've cut out of the working budget to get to a retirement budget are reasonable, doable and worth giving up in order to retire. However, if I somehow get a bug to do things that I've never done before (like travel for example), my current plan will be busted pretty quick.

Don't get me wrong, I've budgeted for entertainment, eating out and some other discretionary items, but it sounds like I'm in trouble because, I plan on spending about 25% less in retirement than I do now working. Note that I wouldn't say I'm living large, but I don't think much about my spending either. I always figured as long as I met my savings goal, that spending was the benefit of working.

I'm I completely missing something? Is there no one here who cut their spending significantly in retirement?

W2R pulled info from the EBRI report (above) that stated almost 40% of retirees spent less than 80% of preretirement spending in the first 2 years and it grew to over 50% by the 6th year in retirement. You won't be the Lone Ranger with your +/-25% spending reduction..

Our preretirement spending was very LBYMs (heavy savings scenario - more than half of our incomes). We did reduce spending in the first 2 years of early retirement (retired @ 58/57, six years now), but we have been ratcheting up spending during the following 4 years. That ratcheting up can be eliminated as it is optional discretionary spending (as others have stated).