A study that tracked spending of a group of retirees in their first six years after retirement showed that spending did drop, but not by a large percentage at first and that spending tends to flatten out after a few years.
Post-retirement spending expectations form the basis of much retirement planning, including the common recommendation from financial advisors that retirees try to achieve 80 percent of their pre-retirement income through employer benefits, annuities, savings and other sources.
However, the study by the Employee Benefit Research Institute showed that in the first year after retirement, median household spending dropped by just 5.5 percent, then continued to decline until it was just lower by 12.5 percent on average in the third and fourth year, after which there was little further decline.
It added that although spending on average decreased, in the first two years after retirement 45.9 percent of households spent more than they had in the year before retirement. Even by the sixth year of retirement, 33.4 percent were still spending more. This was not limited to high-income households but rather applies across income levels, it said.
In the first two years after retirement just 39.3 percent were spending 80 percent or less of pre-retirement income, and even after six years, barely above half, 53.1 percent, were doing so. In contrast, during the first two years 28 percent were spending more than 120 percent of their preretirement spending, and by the sixth year, nearly a quarter, 23.4 percent, were still doing so.
