Live Your Retirement Dream - Blog
Spending Patterns in Retirement
Ripples effects from the financial downturn of 2008 will remain with us a while yet and many Baby Boomers are realizing their financial calculations and expectations made prior to the crash are unlikely to be met.
As economies stagger around the planet and many governments are manipulating and lowering interest rates in order to limit their debt repayments, the forgotten "ordinary man" can no longer expect significant appreciations in investments and savings, based on solid economic performance of companies.
Also, billions of "Monopoly Money" are being manufactured out of thin air by central banks, leading to the spectre of dilution and devaluation of currencies in the future, further eroding the buying power of retirement savings and investments.
Combine these two factors with the precarious state of many Pension Plans, and it becomes easy to understand the tsunami of articles examining the question of "How Much Do You Need To Retire?"
Obviously, there is no one simple answer, as everyone's circumstances and retirement dreams are unique. Baby Boomers and upcoming retirees who are already debt free and are happy to live a quiet life will require far less for their later years, than the Baby Boomer who has significant debt to service and plans to travel the World, living it up and staying in five star hotels until their late eighties.
A generalization has been a retiree will need 70% of the last three years of the pre-retirement annual pre-tax income, but how valid is this estimate?
A report in 2010 by Russell Investments found the average Canadian retiree spends about $34,400 per annum and suggested the lower figure of 60% of pre-retirement income should be adequate for many retirees. However, this estimate does not take into account the eroding effects of inflation or debasement of the currency.
The Urban Institute based in the United States in its 2005 study "Understanding Expenditure Patterns in Retirement" found married couples between the ages of 65 and 74 years, in retirement spent on average 89% of their expenditures between ages 53 and 64 - a drop of 11%. A further 11% decline in expenditures occurred in the years after the age of 75.
These percentages are based on spending - not income - so on after-tax dollars. The old saying "two can live as cheaply as one" seems to hold true, as single individuals spend only 1% less, in the 65 to 74 period compared to 53 to 64-year-olds, and 10% less from age 75 onwards. Given the increasing numbers of single persons with aging, these figures are worth considering.
There is also evidence the lowest 25% of net worth individuals entering retirement see a 22% decline in retirement spending, compared to only 7% for those in the wealthiest 25%.
Also, regardless of wealth, those who considered themselves in excellent health experienced only a 9% decline in spending, versus 26% for those in poor health.
A further study in the Journal of Financial Planning by Tacchino and Saltzman identified a 20% slow decrease in retirement spending from the years from 65 to 75, regardless of financial status.
A Russell Investments study suggests that in Canada, the Canadian Pension Plan and Old Age Supplement provide less than 70% of the “life essentials" of food, shelter and transportation. The remaining 30% should be available from the individual's savings and investments but many, many retirees do not have adequate resources to fill this gap.
Many Baby Boomers have accepted they will need work longer to make more money and generate added income in their later years.
It is time for a community of Baby Boomers dedicated to providing support and advice for those, who need assistance in generating this added income.
Without a doubt, not “Winds of Change” but “Typhoons of Change” are sweeping the planet and we can view these “typhoons” with a gloomy outlook of destruction and the breakdown of the Old Order or as a cleansing, wiping away of the current mess, providing a golden opportunity for a new start. And opportunities abound for those with minds and eyes to see them.
As the World’s economies stagger under mountains of debt, the dearth of any leadership is disconcerting. Europe is politically paralyzed with its countries seemingly wandering around in a helpless daze; neither of the contenders in the upcoming US Presidential show any qualities of great leadership and who knows the political dynamics within the Chinese Politburo and Hu Jintao’s leadership abilities?
What we do know is that the “The Times, They Are A-Changing” and we are not fond of change, which unsettles us and rattles our comfort zones.
Boomer-Bucks is committed to showing the older members of our communities how to survive and thrive in the coming decades, and as we are entering an Era of Knowledge, increased understanding increases the chances of “thrival”. The torrent of information, now available to us, roils along like a great river. Some of us are swimming hard and learning, keeping ahead of the current; others are in the mainstream of the river, going with the current and just keeping their heads above water, but many are falling behind and going backwards in back eddies, out of the mainstream.
Shakespeare said it best in “Julius Caesar” -
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.
The Flood of Today is a Flood of Knowledge but how do we know “What We Need To Know” in order not to be left behind in a back eddy?
The solution is always the same – take the first step and start eating the “elephant of knowledge”, one bite at a time and follow your nose from this point on -
To quote Henry Ford -
“Anyone who stops learning is old, whether at 20 or 80?.
And Harry Truman -
“Not every reader is a leader, but every leader is a reader.”
From Aristotle, writing over 2,300 years ago -
”The educated differ from the uneducated, as much as the living from the dead.
And finally words of wisdom from James Madison -
“Knowledge will forever govern ignorance, and a people who mean to be their own Governors
must arm themselves with the power which knowledge gives.”
“No Boomer Left Behind” is dedicated to providing the “power which knowledge gives”.
Is it time for you to “Follow The Herd and Be A Nerd”?