Retirement Spending Patterns: Update

In our previous post , we discussed relocation patterns among retired or retiring persons, which, as it turns out, tend to be highly influenced by the various costs of living in the target locations. It makes sense that persons considering retirement would give careful thought to how they can stretch their dollars the most, and a fair amount of research has been done on how retirees spend and make spending decisions.

Retirement researchers typically assume that people in retirement will do one of two things: they will either pull a steady income from their retirement portfolios each year and adjust that amount for inflation to maintain the same spending power; or they will spend a bit more in the early years of retirement, when they’re more energetic, begin to cut back in the middle retirement years, and then spend more in their last years due to healthcare issues.

The real world apparently doesn’t work that way. A recent study published by the JP Morgan banking firm looked at 5 million Chase defined contribution retirement account holders and found that the amount that households were spending rose dramatically from 2016 to 2019, which were good years for the market. Retirees spent 5% to 9% less in the COVID year of 2020. The research suggests that retirees may vary their spending, depending on how confident they are in their ability to spend—which, of course, would be a much messier (but more real) way for researchers to model consumer behavior.

Other findings suggest that previous assumptions on the amount of money needed to retire may be understated. The rule of thumb used to be that retirees needed 70–80% of their pre-retirement income in order to retire comfortably. However, the study calculated that on average, most retirees were spending almost as much (92%) in retirement as they were when they were earning an income, and about 54% of that was contributed by Social Security benefits. In all, between 16% and 38% of their retirement income had to come from personal savings, depending on the age of the retiree. (As people get older, they tend to take less out of their personal savings.)

The point here is that retirees are more flexible in their spending than economists and financial advisors might assume. Life happens, and none of us are as predictable as the models would indicate.

At Bernhardt Wealth Management, we understand the lesson that current retirement research indicates: everyone is different, and each financial planning and retirement strategy must be carefully tailored to individual needs, goals, and priorities. That is why we stay abreast of current financial and economic research in order to help our clients plan for secure, low-stress retirements. Our fiduciary financial guidance aims to help our clients avoid the financial planning mistakes that can derail retirement planning. To learn more, click here to read our recent Flash Report: “Big Wealth Mistakes the Super Rich Don’t Make.”

Buen Camino !

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Go to the Bernhardt Wealth Management?Blog ?where this was first published to read this and other blog entries.

About Gordon J. Bernhardt: President and founder of Bernhardt Wealth Management and author of Profiles in Success: Inspiration from Executive Leaders in the Washington D.C. Area, Gordon and his team provide financial planning and wealth management services to affluent individuals, families and business-owners throughout the Washington, D.C. area. Since establishing his firm in 1994, he and his team have been focused on providing high-quality service and independent, unbiased financial advice to help clients make informed decisions about their money. For more information, visit?Bernhardt Wealth Management ?and?Profiles in Success .