The Reality of Spending in Retirement

Aug 13, 2019 / Amanda Chase, Horsesmouth Assistant Editor

Our ability to avoid outliving our money is, in large part, due to our expenses in retirement. Turns out, a new study reveals, we’re pretty lousy at predicting how much we’ll actually spend on housing and health care when we retire. And another study shows our spending just before retirement and in the first years of retirement is often wildly volatile.

Let’s start with housing. Nearly half of the late career respondents (46%) said they anticipated spending less on housing in retirement. But only 30% of retirees surveyed actually are spending less on mortgages or rents and utilities than when they were working full-time; 17% of retirees are spending more. In fact, the survey said, most retirees spend the same or more on housing compared to before they retired.

Health care forecasts revealed an opposite result and may provide some comfort to people thinking about their retirement costs. Although 38% of late-career respondents expect to spend more on health care costs (not including health insurance premiums) in retirement, only 25% of retirees actually are spending more than before. But health insurance spending, the study found, was a little more complicated. As with health care costs, a higher percentage of late-career people thought they’d spend more on health insurance premiums in retirement than the percentage of retirees who actually are (35% vs. 30%). But 28% of late-career people said they expect to spend less on health insurance premiums in retirement and that’s exactly the percentage of retirees spending less on them than before they retired.

Another retirement spending study (from J.P. Morgan Asset Management) shows a spending surge just before and just after retiring. The median spending by JP Morgan’s Chase credit card customers one to two years before retirement was $43,000 and that figure rose to about $45,000 in retirement before gradually declining over the next two to three years. The J.P. Morgan researchers also found pretty wide variations in spending patterns of retirees: 38% of retirees decreased their spending versus before retirement; 35% increased spending; 22% didn’t change their spending habits and 7% were “roller coasters”—both increasing and decreasing their spending temporarily in retirement.

You can find the full article, along with links to some of the surveys and more data, at Next Avenue.


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