According to a new report from the Employee Benefit Research Institute (EBRI), on average retirees spend about 80% of what working households spend.1 In other words, in retirement you should count only needing about 80% of the annual income that you earn in the decade prior to retiring.
What’s interesting, though, is that you’re more likely to spend more than that 80% during the first phase of retirement, and less than 80% in the latter years. The early years of retirement tend to be the most expensive because new retirees are healthier and more mobile. While daily transportation expenses may decline since you’re no longer commuting to work, you may have increased expenses if you plan on extensive travel. According to the EBRI study, spending on things like vacations and entertainment tend to be higher for younger retirees. 1
[CLICK HERE to read “Are you saving too much for retirement?” at Reuters.com; November 30, 2011.]
[CLICK HERE to read the report, “Expenditure Patterns of Older Americans, 2001-2009,” from Employee Benefit Research Institute, February 2012.]
As you get older, your spending habits will change. For example, early on, most retirees spend about 9%-11% of their income on health care. But once they get around age 85, that percentage increases to about 18%.1 While your health care expenditures may increase, spending on entertainment, transportation, and even clothes and food will likely decrease. Consider these numbers1:
· The average household headed by someone age 45 to 54 spends 57,788 a year
· Average expenditures for the 55-to-64 age group are $50,900
· From age 65 to 75: $41,434
· Households headed by those over 75: $31,529
That means that even if you do need 80% or more of your working income in your first years of retirement, it’s not likely you’ll need that forever.
Tips for Saving
General wisdom says you should start planning for your retirement when you get your first job and can participate in a 401(k) plan. However, as you get older, you have to ramp up those plans and efforts. The article below from US News & World Report gives you a step-by-step roadmap to follow to properly plan for retirement needs at appropriate times in your life.
[CLICK HERE to read the article, “10 Important Ages for Retirement Planning,” at US News & World Report, February 21, 2012.]
Saving for retirement isn’t easy. One way financial theorist/psychologist Daniel Goldstein advocates staying motivated is by taking a look at your future self. Not just in terms of what you’ll own and be able to do, but also at what you will physically look like. In a published paper, he tested levels of commitment to retirement savings goals by showing participants interactive pictures of themselves that had been aged by 20 or 30 years. Apparently, actually seeing what you may look like as a senior can be very motivating.
If you own an iPhone, iPod touch, or iPad, you can try out this exercise for yourself with an app from AgingBooth. Check it out at the link below.
[CLICK HERE to read the article, “Retirement tips: Here’s how to save more now,” CBSnews.com, February 21, 2012.]
[CLICK HERE to download, “AgingBooth,” at PiVi and Co. ($0.99), February 2012.]
Give us a call for help finding ways to both get motivated and plan for your different phases of retirement.
1 Employee Benefit Research Institute, “Expenditure Patterns of Older Americans, 2001-2009,” February 2012.
Source: Woods Blog Old