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How Much Will You Actually Spend in Retirement?

One of the most common retirement questions people ask themselves is this: Will I have enough money to spend in retirement? It’s also a question that we financial planners spend a lot of time thinking about. 

I’ve talked before about one of the more popular rules of thumb – the old “4 percent rule,” which says that you can reasonably take out 4 percent from your portfolio each year, inflation-adjusted, and potentially still have your money last for 30 years. But this 4-percent rule – which is more of a guideline than a rule – is deeply flawed on its surface; and yet it still plays a role in many online retirement income calculators. 

They may ask: “How much money do you have? Okay, take 4 percent of that total, rebalance, and next year, do the same thing. Maybe add a little more for inflation.” 

But does retirement spending actually work that way? Do retirees really spend a fixed amount each year for the remainder of their lives, along with a small bump for inflation? I say – no. And there’s research to back me up on that.

The truth is that virtually no one spends on a straight line in retirement, because your spending habits and spending needs will almost certainly change over time. And here’s why it’s important to know that: you may be closer to having enough money to last you through retirement than you think. 

It can be really frustrating for people to think they have to save up a huge pile of money from a job they hate in order to produce this gigantic spending number 30 years into retirement, when in fact, as they age, their spending needs will likely decrease – which means their portfolio may not need to be as large as the retirement calculators would suggest. 

An analysis of Bureau of Labor Statistics data found that on average, US households under age 55 spend almost $58,000 a year on a wide variety of expenses. Around age 55, their spending tends to increase slightly, as some younger retirees travel or pursue new interests. In the age range when most are retired at age 65-plus, there is a significant drop in overall spending. 

Housing costs were steady for a while and health care expenses went up, but nearly every other category, like transportation, clothing, entertainment, food and drink, declined sharply as the retirees got older. 

And the spending drop-offs are even more pronounced among those retirees with $1 million to $3 million in assets.

What this seems to tell us is that the more money you have, the steeper the drop in spending is, in real terms. 

What it also tells us is that you may not need as much money saved up as you thought in order to retire. It could be that with some planning and careful scrutiny of your individual situation, you just may be able to retire and enjoy your life well ahead of schedule.  

We help our clients make decisions like these every day at Lucia Capital Group. How can we help you the most? Just give us a call. 

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances.

You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

No client or prospective client should assume that this information, or any component thereof, serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group or from any other investment professional.

Rick Plum is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.

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