The theme this week on the One Minute Retirement Tip podcast is: new research that will shatter your expectations about spending in retirement 

Today, I’m talking about why non-discretionary spending in retirement is actually flexible, especially if you’re in the top 20% of net worth, which is defined as a net worth of more than $667,000. 

Non-discretionary spending includes spending on the basics. These are things that we all need like food, housing, & utilities. The conventional thinking is that this spending is fixed, but looking closer at the spending habits of the over 1,400 retirees in the survey, non-discretionary spending was actually flexible in retirement. 

What the data really shows is that the decline in overall retiree spending of about 2% annually that I discussed in detail yesterday is primarily driven by a DECREASE in non-discretionary spending. 

This is a bit of a head scratcher. How could you or I possibly spend less on the essentials as we age, after accounting for inflation. You still need food 

But once I think about it a bit more and look at the spending habits of many of my clients, this makes more sense. 

Older retirees - those in their late 70s, 80s, and 90s will often make spending decisions that are consistent with this research. Instead of shopping at whole foods, they might shop at the discount grocery store. They often downsize, move to a lower cost of living area, or end up paying off their mortgage in retirement, significantly reducing housing costs. Many retirees are more likely to defer maintenance spending, and more likely to get the full life and usefulness from their roof, their car, and their dishwasher. 

The wealthier you are, the more flexibility you had to reduce these non-discretionary expenses. On the other hand, if you were in the bottom 20% of households in terms of your net worth, you had much less flexibility in this area and fixed spending remained truly fixed. One can only decrease their spending so much, so if you start retirement spending only $20-$25,000 annually, you’ve already cut back all you can and so you’re spending is going to truly remain fixed over your retirement years. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance