We’re enjoying a sunny trip in the Caribbean right now with our son who is off from college. We left right after New Year’s, so I never got a chance to look at our final spending numbers for 2018.
That said, I ran across this interesting chart from JP Morgan’s Consumer Expenditure Survey that looks at how much people spend annually as they get older, that I thought I would share today:
At first glance, it looks like planning for retirement spending gets easier the older you get. Spending in your late 50s-early 60s is 8% lower than a decade earlier, followed by 12% and 25% drops in the decades after that.
It’s quite a downward slope overall. The final 75+ stage is almost 40% lower than the first stage on the chart. Housing costs – particularly mortgage related – make up for the most of the decline. Food/beverage and transportation also drop quite a bit, while healthcare costs go up.
As they say, the devil is in the details, and the footnote of this chart also notes that the spending is for a household, not for an individual, and less people live in a household as time goes on. From 2.7 people in the first stage of the chart (age 45-55), when kids are probably still at home, to 2.1 people, then 1.9, and finally 1.6.
That’s probably not too alarming between 45-54 and 55-64 as kids grow up, finish schooling, and get “off the family payroll”. Income is likely still solid and so the financial situation still nets out to a positive.
The challenge comes in later years when the number of people at home slips below 2. That likely signals that a spouse may have passed away, or there was a divorce. In the case of someone passing away, income is also likely reduced as social security and pensions do not pay as much to the sole survivor as they did to both household members. That leaves a lot of bills for the surviving spouse on less cash flow.
Other than our son’s college costs, we have planned our annual spending flat until age 75, when our spending is reduced 1% annually for the next 10 years. Our overall nest egg isn’t really impacted much by this reduction, but I did want to at least reflect that we are likely to spend less. Looking at this chart caused me to go back and also reduce the monthly pension benefit that we have coming in.
How have you planned out your spending across a long retirement?
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