Stage 4: For many people, the last two years of life are the most expensive. Spending may really decrease during this phase. Stage 3: As you get older, your health might decline and you may find that you want to slow down. During this stage, your spending might increase as you suddenly have a lot of extra time and your time is spent spending money instead of earning it. Stage 2: This is the stage where you have officially stopped working and the focus is on leisure. For many people, spending during this stage stays roughly the same as it always has been. In the transition, you may work part-time or switch to a retirement job. Stage 1: For many people, the first stage of retirement is the transition to retirement. And, each stage has very different spending patterns. Since Spending Varies – Try Planning in Stages However, although average spending in retirement fell, a large percentage of households experienced higher spending in the first few years following retirement. But the spending reduction slows down after the fourth year. In the first two years of retirement, median household spending drops by 5.5 percent from pre retirement spending levels, and by 12.5 percent by the third or fourth year of retirement. Average Spending Drops Modestly After RetirementĮRBI research suggests that household spending drops at the beginning of retirement. Research Suggests that Average Retirement Spending Varies Over an Individual’s Time in RetirementĪccording to the Employee Benefit Research Institute (EBRI), retirement spending varies over an individual’s lifetime. The reality for most people is that spending varies over time. And, it is important to note that spending does not typically fall by 20% in the first year of retirement and stay steady. However, research suggests that the 20% rule is not necessarily the best benchmark. That being said, the rule of thumb used by lot of financial advisors is to plan on spending 20% less in retirement than what you spent while working. Most standard economic models assume that over your lifetime, the amount you spend is continuous and relatively stable and doesn’t even drop during retirement. What Do the Experts Say About Average Retirement Spending?
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