Will You Spend Less, or MORE, After You Retire? Some Interesting Research Findings That May Surprise You

by | Feb 6, 2023 | Blog

So…how much money will you really spend in retirement? Probably a lot more than you think, says Dan Ariely,  the James B. Duke Professor of Psychology and Behavioral Economics at Duke University writing in the Wall Street Journal.

Ariely conducted an in-depth study of spending patterns after retirement to test the theory that a couple will only need 70 percent of their pre-retirement income, POST retirement.

Replacing the income you had from work is the beginning point of a smart retirement plan. Without ample income in excess of your expenses, you will be spending down your life savings and always be wondering if you are investing the right way and worrying if you are going to run out. If a few bear markets come your way followed by some inflation, higher taxes, a recession– plus long term care issues, you could end up spending a lot more than you think.

If you spend $6,500 to $7,000 dollars a month for example, that equates to approximately $80,000 a year in 2023 dollars. Think for a moment: If you’re in your 60s and your spouse is in her 50s, you may need income for thirty years, but SHE may need income for FORTY years or more. And a little thing called inflation might affect your budget.

Doing the simple math, $80,000 times thirty years is $2.4 million dollars. $80,000 (thousand)  times FORTY is $3.2 million. That’s WITHOUT inflation! SO, will your spending go DOWN in retirement? Not likely.  Most people do not spend less in retirement as statistics bear out. Add the inflation factor and you can see that your spending could total $3 million to $4 million during your lifetime. If you spend $100,000+ a year (which many of my clients do), the reality is that you will spend $5 million to $7 million in your lifetime, if you are currently in your 50s and early 60s.

Mature woman talking with man while having coffee in kitchen. Male and female are spending leisure time together. They are at home during COVID-19 lockdown.

The point: that’s a lot of money. It has to come from somewhere. The safer and more reliable the income to support your lifestyle, the more enjoyable and comfortable you will be. If your plan relies completely on non-guaranteed mutual funds and stocks, you may want to think about adding high quality fixed income to your strategy.

Ariely’s research turned up what I’ve learned in twenty plus years of retirement planning–In the practical real world, post retirement spending is no different from pre-retirement spending for most people with six and seven figure portfolios. You are going to keep being YOU—unless a shortage of income and shrinking of capital alter  your plans.

How spending may increase in retirement

To find out what percent of salary people actually will need in retirement—Ariely asked participants specific questions about their planned lifestyles and preferences in retirement. He then attached reasonable numbers to their preferences and computed a shocking number…it came to 130%!—meaning the participants would have to save nearly double the amount they originally thought!

Not only are  you highly likely to spend the same amounts in retirement as you did prior, your spending may increase because you have time on your hands.  As the saying goes, “every day is Saturday”, you may shop for pleasure, and you may want to travel more. The only game changers are paying off mortgages and cars. That can help greatly in reducing your monthly bills. However, more and more people are retiring WITH a mortgage.

Social Security Is Not Enough To Live On… And Social Security Trust Funds Are Scheduled to Deplete in 2033

Do you have enough to retire?  In every other aspect of your life, you plan for unforeseen events. Your investments are no different. Will inevitable recessions,  market crashes, inflation, and Social Security depletion (as projected by the U.S. Government) torpedo your income in your later years?

Portrait of smiling mature woman embracing man. Happy couple is spending leisure time at home during COVID-19 outbreak. They are in casuals.

Today’s crazy markets and low interest rates are leaving many folks wondering where and how to allocate their money. Rather than placing faith in the whims of the market, and ignoring fixed income, the IQ Wealth® approach is clearly defined and systematic. We invite you to learn more at IQWealthManagement.com.

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