How Fast Will You Spend Your Wealth in Retirement?
April 27, 2010 by MJP
Filed under Retirement Income
Retirement planning is hard because knowing how we will spend our money as a retiree is difficult. We can make assumptions or predictions based on our current spending. But how accurate is that really? Would it make more sense to study the retirement spending habits of current retirees?
Although the study concludes that retirees spend carefully, the overall wealth patterns of retirees vary dramatically depending on pre-retirement income levels.
For example, retirees in the top income category managed to increase their net worth through age 85. Those in the middle income ranges held on to their net worth generally until age 70, at which point their net worth began a slow decline. For the lower income retirees, they quickly exhausted their meager retirement savings and entered a long period of being totally dependent on Social Security benefits and pension income, if they were lucky.
Take a look at the graphed data in the report – it is telling. Yet another report cited by the study authors states that 87% of surviving spouses die with some wealth left over. That’s good to hear.
The study authors made a prediction that is important to baby boomers. Social Security benefits are likely to change and Medicare premiums will increase. This will decrease the amount of income that retirees can replace with their Social Security benefits.
On this issue, recent comments from former Senator Alan Simpson are interesting. Simpson is the co-chair of President Obama’s so-called “Government Debt and Fiscal Responsibility Commission.”
Most observers believe that this Commission should be called the “do something about Social Security and Medicare commission.” Simpson is known to dislike these government programs in general, which is probably why he was appointed.
On Fox News this past week, Simpson claimed that the problems with Social Security could be fixed in a half-day of work. Maybe so, but he added this:
But the thing that is really impossible to believe is that whatever adjustment we make and whatever has been suggested for the last 10 years in Social Security reform, from top to bottom, you know, new dates, more contribution, none of that affects anybody over 57. Where do I get my mail? From these old cats 70 and 80 years old who are not affected in one whiff. People who live in gated communities and drive their Lexus to the Perkins restaurant to get the AARP discount. This is madness.
For the sake of many baby boomers, I hope Simpson is sincere about not applying radical changes to those over 57. Even with cautious spending, we need those Social Security retirement benefits to help us maintain a basic standard of living.
I would like to see more historical retiree spending data like that reported by the Urban Institute. I wonder if the millions of baby boomers can dial back their spending habits when the time comes.
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