Do retirees consume more or less after retirement?
The harvest of old age is the recollection and abundance of blessing previously secured” – Marcus Tullius Cicero, Letter IV to Varro
Reaching our sunset years can often be intimidating, and we often ponder what that will entail or look like. Most of us have at least some hazy vision of what our retirement will be like, what sort of hobbies will entertain us in the future or what places we’ll visit after long years of dreaming and saving.
The conventional view of the financial planning industry is that our expenses will decrease as we get older and enter retirement. We won’t have to spend money on gas every day or certain types of clothing that is necessary for our job. We won’t use our shoes as much or eat out at lunches. But is that really true? After all, many individuals and couples on the cusp of retirement have dreams that they’ve deferred until the time when they no longer have to work.
They have gardens they want to build and that Viking cruise down the Danube they’ve imagined themselves on. Some will save money on gas from not going to work every day, but what about the gas mileage of a couple visiting Yellowstone or Yosemite after buying that RV? What about the expensive fishing rods and tackle you’ll need to catch that largemouth bass you’ve always wanted stuffed over your mantle?
“Come what may, all bad fortune is to be conquered by endurance.”
Virgil
Luckily for us, the Center for Retirement Research at Boston College performed a study where they asked the question: do retirees consume more or less as they age?
What they found is that consumption does decline for retirees, but not as a result of natural declines in spending as mentioned above, but rather because of 1) a lack of funds and 2) declines in health.
On the other hand, healthy and wealthy retirees sometimes spend more than they consumed beforehand, and for the reasons mentioned above. Unfortunately for some families, because they are no longer working or have not saved enough for retirement, they are required to live solely on what they receive in social security from the government. This leads to them having to save and scratch out their living, rather than go on those trips or take up new hobbies, and even if they can manage to squeeze a couple vacations or two in, it’s often very early in their retirement. Furthermore, if medical costs begin to rise, they can eradicate a retiree’s ability to enjoy other aspects of their life.
The idea of having a financial advisor and growing your assets while you’re still at work is to ensure that your vision of your retirement can be fully realized.
