Spending declines in retirement is simply a matter of record, so don’t panic if you feel you haven’t saved enough. Some financial articles claim you will spend more because of travel and medical expenses. This may seem reasonable until you actually look at the facts.
Many of these doom and gloom writers are not retired themselves, so they have to speculate. Many of them hope you’ll panic, so you will come to them for help. Since, I’m in my seventh year of retirement, I like to combine my actual experience with objective studies to provide a clear and accurate picture of what you can expect.
Lifetime pending patterns by age are extremely similar for the American culture. We know it is typical for household spending to peak in the 45-54 age range because that is the family formation years. This is when we tend to have the largest and most expensive home and childcare expenses. As our children mature and reside independently, our expenses naturally decline.
One of the biggest declines is in expenses is for your mortgage. By the time your are in your 70’s, it is nearly non-existent. Many retirees change from owning their home to renting since it’s more cost effective. The other huge decrease is transportation. I find that all work related expensed decline including driving expense, tools, clothes, eating out and union or other work fees.
The percentage decrease from the 45-54 age to the 75+ age group shows a decline of 38% in living expense. That’s huge and is going to help a lot of budgets in the future. If you know what your expenses are, then you can accurately budget for them before retired. You can exercise budget control by how much your decide to downsize. I was in a five bedroom house before I decided to downsize to a three bedroom condo that cut my housing costs in half.
In conclusion, there has been way too much doom and gloom predicted around the ability of Americans to retire. Of course, we could have saved more, but it’s not the end of the world. Our abilities to adapt to changing situations has been greatly under estimated. This reduction in expected retirement expense is welcome news for our budgets. To compensate for shortfalls, I find that most of us will work a bit longer and become a bit more frugal in our habits. That’s something we can all adjust to while we still keep a smile.