How Spending Habits Really Change After Retirement

[RonBoyd]

Interesting article:

How Spending Habits Really Change After Retirement - 24/7 Wall St.

The Employee Benefit Research Institute (EBRI) has now issued a very long, detailed report about just what changes in household spending take place after retirement.

This study analyzed the spending patterns of a fixed group of households and tracked how household spending patterns changed during the first six years immediately after retirement.

for the full report go to http://www.ebri.org/pdf/briefspdf/EBRI_IB_420.Nov15.HH-Exp.pdf

 

[W2R]

From the article,

What was surprising was that the drop in spending seems far less than what many people might guess, and that brings a serious issue for everyone’s retirement plans

With all the articles saying that we should plan on an income of 80% of our working income, I'm not surprised. There is no reason to save for retirement any more. Taxes are lower. And, retirees have lots of free time to spend money.

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.
• In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their preretirement spending. By the sixth year of retirement 23.4 percent of households still did so.
• A very small percentage of the household budget was spent on durable goods. The median household (half above and half below) spent nothing on durables in retirement.
• Transportation spending showed the highest drop in the first two years of retirement. Median spending on transportation went down by 25.1 percent in the first two years of retirement, although the reduction in subsequent years was small.
• The median household had a mortgage payment before retirement but none after retirement.

This sounds correct to me. No need for transportation to and from work, and by standard retirement age a lot of people have finished paying off their homes. I'm not sure what is meant by durable goods, but if they mean furniture, then I think many retirees have finished furnishing the house before retirement.
​

 

[Totoro]

I'm not sure what is meant by durable goods, but if they mean furniture, then I think many retirees have finished furnishing the house before retirement.

Usually it covers washing machines, dryers, DVD players, laptops, TVs, that sort of thing. Not so much furniture.

Less intensive life and lower need to keep up with Jones.

[Edit] It seems to also include cars and furniture (thanks wikipedia). There you go. Less mileage.

 

[2017ish]

...

With all the articles saying that we should plan on an income of 80% of our working income, I'm not surprised. There is no reason to save for retirement any more. Taxes are lower. And, retirees have lots of free time to spend money.

...

Searching the report, there is no reference to income taxes (just to "property taxes" in the definition of housing costs). Because of income/FICA taxes, there is no way we will match our present spending once we retire. Don't know how they accounted for that--and it obviously varies among those surveyed....

 

[Options]

<shrug>

Prior studies have shown retirement spending follows a "smile" pattern, higher in the beginning, falling as retirement progresses, then rising again near end of life (due to rising healthcare costs). This make sense when measured against the three phases of retirement: the go-go (younger and active), slow-go (not as active), and then no-go (not active) years.

I read the full report here and have a hard time extrapolating its average spending patterns to my own. In my case, I had so much pent up spending demand that I dropped close to $50K on all kind of "durable goods". Of course, I had saved for this ahead of time.

I've never found it useful to use percentages of pre-retirement spending to gauge post-retirement spending. If you've tracked your spending closely for 10-15 years prior to retirement, you should have no problem roughly projecting retirement spending (higher inflation variables such as medical must be accounted for differently).

 

[tmm99]

I wonder if the smile pattern is partially due to a move many retirees make at the beginning of their retirement (due to downsizing)?

 

[youbet]

<shrug>


If you've tracked your spending closely for 10-15 years prior to retirement, you should have no problem roughly projecting retirement spending (higher inflation variables such as medical must be accounted for differently).

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.

For example, a couple both work, live in suburbia and raise several kids through college. They RE at 53 yo. They're now empty nesters, sell the house, buy a big RV and take up the life of full time RVing. I think they're going to be better served by building a retirement budget up from ground zero than placing much reliance on the past 10 - 15 years of spending data. (Not that some of the data might not apply.......)

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.

 

[Amethyst]

We have been replacing everything (worn out, broken, dated) on and in the house, and just bought a new car. Now the TV is dead. So our post-retirement spending has been way, way higher than pre-retirement. I guess it's what the real estate agents like to call "deferred maintenance" or "deferred improvements" (to avoid using words like "neglect" and "cheapskates" )

 

[youbet]

We have been replacing everything (worn out, broken, dated) on and in the house, and just bought a new car. Now the TV is dead. So our post-retirement spending has been way, way higher than pre-retirement. I guess it's what the real estate agents like to call "deferred maintenance" or "deferred improvements" (to avoid using words like "neglect" and "cheapskates" )

+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.

 

[walkinwood]

<shrug>

Prior studies have shown retirement spending follows a "smile" pattern, higher in the beginning, falling as retirement progresses, then rising again near end of life (due to rising healthcare costs). This make sense when measured against the three phases of retirement: the go-go (younger and active), slow-go (not as active), and then no-go (not active) years.

The change in spending year to year follows a smile pattern, not the spending itself. I think that's an important difference and I thank Dirk Cotton for pointing that out in a blog post
The Retirement Café: Spending Typically Declines as We Age

 

[NW-Bound]

We have been spending roughly the same. I thought it would go way down once the children were off college. But spending on home maintenance and upgrade went way up, and that canceled out the tuition drop-off.

Hopefully, in next year or so, the expenses will drop for real, unless we find new ways to spend money. Elsewhere on the forum, a poster talked of a 5-week European river cruise. Temptation, temptation...

 

[youbet]

, unless we find new ways to spend money.

You can do this! Think about: What's interesting? What feels good? What's tasty but expensive? What's entertaining? What would thrill DW? What would be fun to play with? What's entertaining? Who in your life could you give a gift that would positively impact them?

I'm sure you get the idea?

 

[walkinwood]

Retirement studies in particular are hard to apply to us on this forum.

For one, most of us retire much earlier than the typical retiree studied and we do so on our terms. Almost all here are financially astute - way more astute than the population at large. I also get the feeling that (generally speaking) we are better educated (academic degrees) and healthier in general than the population at large.

And I'm sure we're better looking too

 

[Beldar]

We have been replacing everything <snip> what the real estate agents like to call "deferred maintenance" or "deferred improvements" (to avoid using words like "neglect" and "cheapskates" )

In my case I'll gladly use those words.

I've driven my "w*rk" car 79 miles since ER'ng in June. That's ONE day of prior commuting. So, our transportation costs have definitely softened. But, we haven't begun the day and week tripping we plan to do now that we're free.

_B

 

[Options]

...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...This board is full of folks who made or plan to make significant lifestyle changes in retirement.

Well this is exactly what I am doing within the next five years. In fact, my retirement spending will actually be double what it was in pre-retirement (I'm afraid I'm going to have to claim the pre-retirement "neglect/cheapskate" title here) , and involve several changes. However, my own spending patterns pre-retirement together with projections based on future changes were most helpful in coming up with future spending. No study could help me with that.

The change in spending year to year follows a smile pattern, not the spending itself. I think that's an important difference and I thank Dirk Cotton for pointing that out in a blog post
The Retirement Café: Spending Typically Declines as We Age

Yes, this is exactly what I was referring to. Others besides Cotton have pointed this out.

 

[Ronstar]

I spend about $500 less per year in retirement than I did while working. But there's been a shift from vehicle, clothing and tax expense to travel and hobbies.


Sent from my iPhone .using Early Retirement .//82339)

 

[jkern]

Not counting the planned college for daughter and home remodeling, my spending has stayed almost the same as before. Although weekday golf is much cheaper.

 

[BBQ-Nut]

I tracked pre-retirement expenses for a couple of years before pulling the trigger. Now DW is still working but plans to FIRE 'soon'.


Based on that - in my first year of FIRE, we are spending about the same. But in my case and DW, we always did LBYM, so we had a surplus of income from w*rking that was socked away during our accumulation phase.


So, we don't need 80% of pre-retirement *income*, but our expenses are about 100% pre and post FIRE.

 

[Senator]

I'm not sure what is meant by durable goods, but if they mean furniture, then I think many retirees have finished furnishing the house before retirement.

From the article

The main spending categories are defined as follows:
 Durable: Sum of all spending on durable goods, such as refrigerator, washer/dryer, dishwasher, television,
computer.

 Non-Durable: Sum of all spending on non-durable goods, such as gifts, clothing, charity, dining out, medication/medical supplies, utilities, food and beverage, health insurance, telecommunications, tickets, trips and vacations, personal care, hobbies, sports, housekeeping services and supplies, yard services and supplies.

 Transportation: Sum of all spending on up to three automobile purchases, vehicle insurance, vehicle maintenance, car payments or vehicle financing, and gasoline.

 Housing: Sum of all spending on housing, including mortgage interest, rent, home/renters insurance, property taxes, home repair and maintenance (supplies and services).

 Total Spending: Sum of durable, non-durable, transportation and housing spending.

It is important to note that housing and total spending data do not include mortgage principal payments. Mortgage principal payments can be considered as savings or investments. Building home equity can be considered as a savings goal by many, and people can choose to invest in their homes instead of other investments by paying more than the required principal payments, so mortgage principal payments are excluded from the spending variables. All the spending amounts are expressed in 2013 dollars.

 

[Looking4Ward]

While it's not a considerable sum I'm spending more now than I was when I was working. But when I was working I was saving almost 75% of my net and didn't have much time to do the fun things I'm doing now.

 

[Chuckanut]

Yes, my spending habit have changed. I am spending more on me and mine and less on work related items such as clothing, commuting expenses, coworker's fund raisers, and supplies/materials for the classroom.

 

[youbet]

I spend about $500 less per year in retirement than I did while working. But there's been a shift from vehicle, clothing and tax expense to travel and hobbies.


Sent from my iPhone .using Early Retirement .//82339)

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

 

[daylatedollarshort]

We try to live the same lifestyle or better but spend less, which has been fairly easy since we had a lot of fat in the budget before and now we have more time to review expenses, make the house more water and energy efficient, price shop especially for groceries, bargain hunt, cook from scratch and DIY tasks. Plus we spend less on commuting and job costs, less on taxes and the kids will be off the payroll before too long now.

I guess I don't really understand a lot of the spending in retirement articles. Isn't how much a household can spend in retirement largely a function of the retirement income the household has available? We spend what is in our budget or less. If we spent a lot more we would eventually run out of money.

 

[Dreamer]

Our expenses have gone up most years. We remodeled our house and spent more on the remodeling, than we paid for the house in 1986. Bought all new appliances for the kitchen, except for the refrigerator. It was fairly new. This was do to years of deferred maintenance. We were busy working and rearing our family and did not have the time to buy everything needed for the remodel and to oversee the contractor, until after we quit working. My DH traded corvettes and insurance is higher on the new one. Since I quit my part-time job 05/15/15, I have driven to VA with granddaughter and then we flew to FL to Disney World. DD's family moved to NC beginning of June 2015 and we have driven from WV to NC 3-4 times since then. DH and I also drove to Maine on vacation.

Things we would like to do: I go to WVU Dental School. They have given me 5 different treatment plans, ranging from the least expensive $11,500 to most expensive $33,000. I have not decided which treatment plan I am going to use yet, but I don't think it will be the least or the most expensive plan. I will start having the work done either in 01/16 or wait until after my cruise in 02/16. I would really like to get an Ipad for our traveling. DH takes his laptop, but I feel guilty if I use it too much and know that he is wanting to use it also. It would really be nice to buy a new king size bedroom set. Our queen size set is almost 40 years old and looks like it. We are not as small as we were when we bought it. There are a few other things, but they will have to wait until 2017 or later.

 

[audreyh1]

I guess I don't really understand a lot of the spending in retirement articles. Isn't how much a household can spend in retirement largely a function of the retirement income the household has available?

Yes, exactly!

And in determining whether they have enough to retire early, I see folks here focus on whether their funds will meet what they would like to be able to do in retirement. That is the appropriate approach (and sometimes cause for OMY syndrome).

I don't think retirement spending correlates with spending while working. We spent more, mainly because a) we were saving a lot while working, b) working too hard to have time to spend much and c) after retiring had the funds to spend.