Julie Jason: What can you expect to spend in retirement?

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“Wealth” and “health,” what more can anyone ask for? These were the factors studied by the Center for Retirement Research (CRR) at Boston College. The research brief is titled “Do Retirees Want to Consume More, Less or the Same as They Age?” (tinyurl.com/yw8k7f53).

If you think about it, we all want to maintain or enhance (not lower) retirement standards of living, yes? It will take “70 to 90 percent of your preretirement income to maintain your standard of living when you stop working,” according to a Department of Labor release titled “Top 10 Ways to Prepare for Retirement” (tinyurl.com/2p86j2b3).

However, these figures are challenged by the CRR study. Authors Anqi Chen and Alicia H. Munnell point out that previous research highlighted the “retirement consumption puzzle,” a sharp drop in post-retirement consumption as new retirees tended to consume less than they did while working. Explanations for the drop included a decline in work-related expenses (not buying “work clothes” or traveling to the job), a drop in food expenditures (more time to cook at home and to shop for the best prices) and, for those who involuntarily retired, reduced consumption due to the sudden transition.

What about changes in consumption during retirement, as opposed to at retirement? How would consumption be affected by things like wealth and health over a longer period of time? The authors used information from two longitudinal surveys to gauge the consumption behavior of retirement households.

In general, the CRR study found that consumption declined for retired households about 1.5 percent to 1.6 percent every two years. This estimate is similar to previous studies, as well. The findings also suggested that about 20 years into retirement, consumption was projected to be about 12 percent to 13 percent lower than at the start of retirement.

But for households in the higher third of wealth levels, there was a smaller consumption decrease (0.7 percent every two years) than for those households in the middle (1.6 percent every two years) and bottom wealth levels (2.0 percent every two years).

Also, those households whose retirees reported themselves as being in very good or excellent health had a consumption decrease of about 1.3 percent every two years, while those in good health (1.5 percent every two years) or fair/poor health (3.1 percent every two years) had bigger declines.

What about the combination of very good health and higher-level wealth? Not surprisingly, higher-wealth households that self-reported very good or excellent health at retirement basically had a flat consumption pattern, declining about 0.6 percent every two years. For those with higher wealth who started retirement with good or fair/poor health, the declines were 1.1 percent (good health) and 3.2 percent (fair/poor health) for two-year periods.

The goal of the CRR study was to better understand the preferred consumption by people in retirement. While there remains an overall consumption decline during retirement, those households that have both health and wealth showed relatively flat consumption numbers, which points to the idea that preferred consumption is likely much flatter than what the data indicates for actual consumption.

Yet the study also seems to reaffirm common sense: When it comes to planning for retirement, take care of your health as best as you can and work to save as much as you can.

Wishing you all good health and retirement wealth.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2021 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.