Examining
the potential differences between assumption and reality.
Provided by Taylor McClish
Financially speaking, retirement might
differ from your expectations. Just
as few weathercasters can accurately predict a month’s worth of temperatures
and storms, few retirees find their financial futures playing out as precisely
as they assumed. Because of this, some common financial assumptions (and anxieties)
about retirement are worth examining.
Few retirees actually “outlive” their
money. Generations ago, many older
people did live in dire straits, sometimes “down to their last dime.” Social
Security was created to help them. Today, Social Security is still around, and
most retirees are smart about their savings and income: they avoid reckless
spending, and if they need to live on less at a certain point, they do. Health
crises can and do impoverish retirees and leave them dependent on Medicaid, but
that tends to occur toward the very end of retirement rather than the start.
The amount you
withdraw annually from your retirement savings may vary. Anything from health care expenses to a dream
vacation to a new entrepreneurial venture could affect it. So could the
performance of the financial markets.
Retiring on 70-80% of your end salary
may not be feasible. Some articles
state that new retirees should strive for that goal, but it can be tough to
achieve.
In the initial phase of retirement, you will probably want to travel,
explore new pursuits and hobbies, and get around to some things you have put on
the back burner. So, in the first few years away from work, you could spend
roughly as much as you did before you retired or potentially more.
JPMorgan Asset Management recently analyzed spending patterns of more
than 5 million U.S. households, reviewing figures from the Bureau of Labor
Statistics, the Employee Benefit Research Institute (EBRI), Chase, and other
sources. It found that median household spending increases on the way to a
retirement transition: it usually begins to rise 1-2 years before a retirement
date, and it generally takes 1-2 years to return to the old pre-retirement
levels. The same study noted that median annual household spending in
retirement declines gradually after age 60 and begins to plateau when people
reach their early eighties.1
Another interesting finding from the JPMorgan analysis: while 56% of
households headed by people in their sixties saw a fluctuation in spending at retirement,
38% of those households saw spending decline, either in the short term or the
long term.1
In fact, once you are
retired for a while, you may spend less than you anticipate. Analyzing Bureau of Labor Statistics data, personal
finance website SmartAsset says that on average, households headed by those
older than 65 spend 25% less annually than younger households (a difference of
more than $15,000). While health care spending increases in retirement, other
household costs decline, particularly transportation and housing expenses.2
You could retire
before you think you will. Most
people retire closer to age 60 than age 70: according to Gallup, the average
retirement age in this country is 61. You could find yourself claiming Social Security earlier than you
planned, if only to avert drawing down your retirement savings too quickly.3
You may be surprised
at your quality of life. Colloquially
speaking, American
retirees seem to have it pretty good. ING, the global banking giant, surveyed
retirees in 15 countries on both sides of the Atlantic and asked them if they
agreed with the following statement: “In retirement, my income and financial
position let me enjoy the same standard of living that I had when working.”
Forty-seven percent of American retirees indicated that was true for them,
compared to 14% in France and 26% in Germany.4
Your retirement may differ slightly or even greatly
from the retirement you have imagined. Fortunately, it may be possible to adjust both your
retirement plan and your retirement income strategy in response.
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other professional
services. If assistance is needed, the reader is advised to engage the services
of a competent professional. This information should not be construed as
investment, tax or legal advice and may not be relied on for avoiding any
Federal tax penalty. This is neither a solicitation nor recommendation to
purchase or sell any investment or insurance product or service, and should not
be relied upon as such. All indices are unmanaged and are not illustrative of
any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - am.jpmorgan.com/us/en/asset-management/gim/adv/insights/three-retirement-spending-surprises
[1/21/19]
2 - tinyurl.com/yy2pojuc [4/26/18]
3 - news.gallup.com/poll/234302/snapshot-americans-project-average-retirement-age.aspx
[5/10/18]
4 - forbes.com/sites/andrewbiggs/2019/03/15/u-s-retirement-system-rocks-europe
[3/15/19]