Do pre-retirees spend too much in retirement?

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A growing number of retirees are overspending early in retirement instead of gradually reducing the amount of money coming out. As a result, almost half of those who retired between 1992 and 2014 do not have the resources to maintain their level of spending.

The Consumer Financial Protection Bureau commissioned a study to identify ways to improve retirement preparedness and protect retirees from overspending of their savings in the event of early retirement. Here is what they found:

Nearly half of all retirees have not had the ability to maintain the same level of expenses for five years after retirement. Just over half of people who retired between 1992 and 2014 had income, savings or non-home assets to maintain the same level of spending for five years. consecutive years after retiring.

The analysis shows that of this 51%, 27% of retirees had the ability to maintain the same level of expenses with income from pensions, social security, annuities or other sources of regular income.

The remaining 24% of retirees had the ability to maintain the same level of spending after adding the value of retirement accounts, savings, mutual funds, or other non-real estate assets, such as vehicles or companies.

Two-thirds of young retirees did not have the capacity to maintain the same level of expenses for five years after retirement. The ability to maintain the same level of spending varies significantly by gender, race, marital status, health status, education level and generation.

Specifically, the ability to maintain the same level of spending was higher among retired men than women, whites than non-whites, married than unmarried, and college-educated than non-married. – graduates.

Additionally, a higher percentage of retirees born before 1946 than retirees born between 1946 and 1964 had the ability to maintain the same level of spending for five years after retirement.

Retirees who were unable to maintain the same level of spending after retirement reported large reductions in spending as they aged. In general, the expenses of retirees decline as they age. A common explanation for this trend is that retirees are spending less because their spending preferences and needs in categories such as transportation, travel, clothing, and entertainment decline as they age.

The study found that lower expenses are also associated with the inability to pay expenses. Retirees who could not maintain the same level of spending for five years reduced their spending by 28% between the first and sixth year of retirement. In comparison, retirees who were able to maintain the same level of spending for five years reduced their spending by 19% between the first year of retirement and the sixth year.

In addition, the study found that significant spending cuts (50% or more) were more likely among retirees who were unable to maintain the same level of spending than those who were able.

The researchers also examined the relationship between the ability of retirees to maintain the same level of spending for five years after retirement and certain financial decisions that retirees made in the years before retirement:

  • A greater percentage of retired homeowners than renters had the ability to maintain the same level of spending (59% versus 30%).
  • Fifty-five percent of retirees without non-mortgage debt had income, savings or non-home assets to maintain the same level of spending for five years after retirement.
  • In general, retirees with pension income had a greater ability to maintain the same level of spending than retirees without pension income (73% versus 39%).
  • Among retirees receiving a pension, those who opted for a pension withdrawal were less able to maintain the same level of spending for five years after retirement than those who opted to receive their pension as a monthly payment ( 73% versus 56%).

“The results of the study indicate that certain financial decisions can improve or decrease the ability of retirees to maintain the same level of expenses; for example, homeowners retiring without mortgage debt,” the study concludes.

“For those with a pension, the choice of a monthly pension rather than a lump sum payment is positively associated with the ability of retirees to maintain the same level of expenses for five years. In addition, the study found that claiming Social Security benefits at or after full retirement age, as opposed to choosing a reduced benefit by claiming early, is positively associated with ability. retirees to maintain the same level of spending for five years.

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