Retirement Spending: Revolutionize Your Thinking

Retirees are thinking differently about retirement spending. Are you?

Conventional wisdom assumes all retirees spend their assets the same way through retirement. But different retirees have different spending and saving preferences. Our research discovered that while some retirees draw down their account balance, many others choose to maintain, or even grow, their balance throughout retirement. Learn how this information can be used to better plan for retirement.

Not all retirees draw down their assets in retirement

  • 30% are Spenders: Adjust their balance to maintain their spending
  • 70% are Savers: Adjust their spending to maintain their balance

Plan emotionally for retirement

Source: T. Rowe Price Retirement Savings and Spending Study (2021), Question 83, Tables 232-1 and 233-1.

Spending through retirement does rise, but slowly

  • Spending in retirement does increase over the years, but more slowly than we've assumed.
  • Instead of rising each year to match the rate of inflation, retiree spending increases about two percentage points less than the conventional assumption.
  • That means people who have been retired for a number of years are spending much less than what we generally assume. 

Real spending (adjusted for inflation)

Plan emotionally for retirement

Source: Banerjee, Sudipto, Decoding Retiree Spending, T. Rowe Price Insights on Retirement, T. Rowe Price Group, Inc., March 2021 analysis of Health and Retirement Study, public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI.

Retirement spending differs based on household net worth

  • Within retirement spending patterns, we see differences based on household wealth.
  • Low Net Worth households have real spending that is almost flat throughout retirement.
  • But High Net Worth households cut their real spending at a faster rate than retirees overall.
  • This suggests "less spending" is a voluntary choice and not something people do because they're running short on resources.

What drives Savers to preserve assets instead of spend?

  • Rational goals: Savers might have a specific future goal in mind, like covering late-in-life medical expenses or leaving money to children.
  • Psychological goals: Some may derive satisfaction from the balance itself or use the balance as a way to assess how they're doing.
  • Behavioral goals: Many Savers are used to spending less than they could throughout their lives and continue that behavior in retirement.

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This material is provided for informational purposes only, and is not intended to provide legal, tax or investment advice. This material does not provide recommendations concerning investments, investment strategies or account types, advice of any kind; and not intended to suggest any particular investment action is appropriate for you. Please consider your own circumstances before making an investment decision.

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