![]() ![]() For example, the Boston College’s Center for Retirement Research published a study that reported a similar, if less pronounced, trend. Their report showed an inflation-adjusted 1% drop in expenses per year, even after adjusting for other factors.īoth of these studies relied on the Bureau of Labor Statistics’ data on consumer expenditures (the CES survey), just sorted and organized slightly differently. (Optimistic in the sense that spending less means your money lasts longer.) Indeed, significant criticism of this data emerged, and subsequent studies were done to further test those findings. To us, that finding seems overly optimistic. The cumulative effect is that in 20 years, those in their late 70s are spending less than half of what they spent in their late 50s. In this paper, Ty Bernicke, CFP, reveals his research done on decades of Consumer Expenditure Survey data, which showed that real (i.e., inflation-adjusted) costs in retirement tend to drop by 15% every five years, on average. For instance, one early example of this research is a 2005 article published in the Journal for Financial Planning. New research on retiree spending trends has been published in the last decade that shows spending tends to decrease in retirement over time, when adjusted for inflation. RETIREE LIVING EXPENSES TYPICALLY GO DOWN OVER TIME (EVENTUALLY) As it turns out, our clients are not unique in this regard: costs on average do tend to go down slowly over time in retirement, but typically not at first. Now, new research is coming to light that sheds additional insight (and empirical data) on the situation. Whether it be physically or mentally “slowing down,” the end result is that people often reach a point in life where they just don’t feel like taking exotic vacations or living a lifestyle to which they were once accustomed. However, at some point (and that point is different for every person), it is typically health-related concerns that cause spending to begin to go down. In fact, our observation is that, if anything, costs tend to go up for the first few years of retirement while people have the time and resources to pursue their passions and long-delayed dreams. While on the one hand it does make intuitive sense that some pre-retirement expenses will indeed disappear, such as dry-cleaning, commuting, and workplace lunches, many new ones will probably surface, even if for no other reason than we now have more time to do things we enjoy. After all, research shows that our personalities, preferences, and values change less and less as we age, and we’re unlikely to be happy if we have plenty of time but no money to live the lifestyle we want.Īnd while traditional financial planning has often taught us to expect to spend in retirement at 80-90% of our pre-retirement level, we have not seen this to be true – at least for clients with means who want to enjoy the wealth that they have so carefully built. ![]() ![]() While some retirees are willing to completely sacrifice their current standard of living just to quit work, rarely do they seem truly satisfied thereafter. In our experience working with clients, the best starting point to plan for your future lifestyle is by looking at your current expenses. Some dream of owning a boat and a vacation home, while others just want to unload the stressful job they feel tethered to. Some envision a lifestyle filled with travel, adventure, and leisure, whereas others just want to have more time to spend at home, with maybe an occasional visit from the grandkids. People have many different views on how they will spend their “golden years” once they’ve left the workforce. ![]()
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