While retirement financial planning often is based on an assumption that retirees want to maintain a certain level of spending over the long-term, studies have found that retirees in general decrease their spending over time, says a report that cites two main reasons for that decline: inadequate savings and health problems.
The study by the Center for Retirement Research said that overall, household spending declines by about 0.7-0.8 percent on average each year in retirement, but that the decline among the wealthiest and healthiest drops by only about 0.3 percent on average per year.
For example, it said of retirees in the top-third level of wealth decreases by only about half as much as those in the middle third and only about a third as much as those in the lowest third.
“Consumption may decline through retirement if households have not saved enough to maintain their expenditure levels . . . for households at the bottom of the wealth distribution, declines in consumption speed up in later years. These results suggest that financial constraints are at least partially behind consumption declines in retirement.”
It added, “Another constraint that retirees face is health status. Households may want to travel or eat out more but are simply unable to do so due to health limitations. Retirees who self-report being in better health at the beginning of retirement have flatter consumption paths.”
Spending by those who consider themselves as in very good or excellent health decreases at less than half the rate as those in only fair or poor health, it said. For the latter group, it added, the decline “tends to tick up in later years, which might reflect higher late-life medical expenses.”