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 the conventional wisdom on constant spending in retirement. 

Most retirement spending strategies assume that spending will remain flat in retirement, after adjusting for inflation. Most modeling for retirement assumes a first year spending amount of a certain dollar amount - say $50,000 - then increases that spending amount annually to account for inflation, so you’re still spending the same adjusted-for-inflation income of $50,000 when you’re 80 compared to when you were 65. 

But what the data in this study actually shows is that retiree spending declines annually by 2%, and if you are in the top 20% of households (which is defined as a net worth of $667,000 or more), your retirement spending declines even more - by about 2.7% per year. 

That means instead of an inflation-adjusted fixed spending rate, by the time you get to age 80 or 85, you’ll be spending a lot less than you’re spending in the early years of retirement. 

The study hypothesizes that this decision is driven by a strong desire to preserve assets, so rather than spend down one’s assets, retirees are more likely to live off of their guaranteed sources of income - like social security, pensions, and annuity income. 

Spending is different for everyone - many of my clients are comfortable with taking out a certain percentage of their portfolio in retirement to supplement their guaranteed income sources, but I also have plenty of clients - especially those who have good pension income - who don’t even touch their portfolio in retirement aside from the occasional withdrawal for a big expense like a new roof or a vacation. Preferring instead to spend as little as possible from their portfolio to preserve their assets. 

That’s it for today. Thanks for listening! Tomorrow, I’m going to talk about why non-discretionary spending in retirement isn’t actually fixed. 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