My husband exited his full-time job in April, and I am freaking out about how much we are spending as he embarks on his travel adventures and we have some major home repairs up ahead.
No, I’m not crazy, nor alone. The problem is the amount we spend each year is far from stable and predictable for the majority of retirees, according to a recent report.
And that means trouble if you’re planning for a smooth-sailing retirement.
“A majority of retirees experience significant changes in their spending patterns over time; about half experience ongoing volatility, or an annual change of 20% or more — either higher or lower,” Sharon Carson, a retirement strategist at JPMorgan Asset Management and the author of the report, told me.
The big trouble, however, is with couples retiring at different times — and how it impacts long-term financial security.
More than half of American households do not retire all at once if you count individuals working in retirement and spouses retiring at different times. Count me in this cohort.
The result is that 6 in 10 couples “experience spending volatility at the beginning of retirement and experience both major ups and downs from year to year,” Carson said.
What’s the deal?
The concern is that spending surges at the beginning of retirement can seriously ding a retirement plan, since early and unexpected withdrawals can damage overall long-term returns. One of our deepest fears about retirement is outliving our money. So figuring out just how much to pull from retirement accounts for living expenses each year is unsettling. Take too much and the future could be bleak.
Read more: How much money should I have saved by 50?
Retirees who take steps to increase their non-retirement portfolio income through strategies like pushing back receiving Social Security checks to full retirement age, ideally age 70, or working longer are in the best shape to weather variable spending and withdrawals. But few are doing that, More than 4 in 10 Americans turn on their Social Security benefit as soon as they are eligible at age 62.
In reality, few couples retire at the same time. Among those currently retired, only 11% left the workforce at the same time, according to a report by Ameriprise.
The good old 4% rule
We’re pushed incessantly to save as much as we can during our working years. When we retire this shifts from saving to spending, and panic sets in.
How much someone can spend each year from their retirement accounts is unique to their circumstances. The 4% withdrawal rate is a percentage that has been the standard for years and still is used as a flagpole, the financial advisers I reached out to this week said. In other words, if you have, say, $1 million saved, you’d take out $40,000.
But what if your spending surges as it does for many partially retired couples? Oh man, that can be a mess.
The JPMorgan study analyzed spending patterns from more than 280,000 Chase customers. “These findings are important since an individual’s financial life may be intertwined with a partner’s,” Carson said.
Read more: Retirement planning: A step-by-step guide
She’s right about that. The traditional spending in retirement model has changed drastically in the last two decades as dual-income couples have become the majority of American households. (Fifty years ago, husbands were the breadwinner in 85% of marriages, according to data from the Pew Research Center.)
“Spending in retirement varies from year to year and is far from stable and predictable for the majority of retirees,” Carson said. “When you add in spouses retiring at different times, that’s very significant.”
Dual-earning couples, she added, “have put a new wrinkle on things, and some of the planning tools and conversations haven’t quite caught up with that yet.”
The expectation is that our spending-like-the-world’s-on-fire phase post-working will taper off as we adjust to paying ourselves from our savings. But when couples play out their financial plan together, it’s not as straightforward as you might imagine.
Sure, we imagine that we ratchet up our spending a bit the first year or so for travel and reward ourselves for our years of hard work, but then we tap the brakes. That’s how most financial planners have typically approached the blueprint for couples budgeting retirement spending — a smooth drop in spending to a steady-eddy level.
But that’s not what is happening. “We thought, oh, we’re probably going to see a lot of people downshift their spending after retirement,” Carson said. “And we did downshifting, then we saw upshifting, and then we saw downshifting.”
These partially retired couples are also spending more to pay down their credit card revolving debt, per the report. “So they’re getting on better financial footing, which is the good news,” Carson said.
Hurray.
Here’s how couples who don’t retire at the same time can manage retirement spending surges:
Have an honest talk about spending before one of you retires.
“Often retirement means some income goes away, and the spending goes up because now you have time to do the things that you’ve been postponing or dreaming of all this time — that’s one of the most fraught parts of the conversation that I have with clients,” Stephanie McCullough, founder and chief executive of Sofia Financial, told me.
Of course, matters of spending and overall money concerns vary widely between us. “Situations are all so different, it’s hard to generalize,” Christine Benz, Morningstar’s director of personal finance and retirement planning, said. “The still-working person’s salary may or may not cover all of the household’s living expenses. If it doesn’t and the couple needs to pull some money from the portfolio to meet their living expenses, it’s actually a great trial run because people often struggle with spending from their portfolios. This is retirement spending with training wheels.”
Get comfortable with spending.
Spending in retirement should be, well, fun. It’s not always so. “One thing that has surprised me in conversation with people is that those who are either retired or on the verge of retiring feel extremely uncomfortable enjoying their money or spending it at all,” said Aja Evans, a financial therapist in New York.
“Learning to spend comfortably and responsibly is just as important as saving and investing for your future. There is a lot of guilt that can come up when it comes time to live off your retirement and not seeing money come in at the same time.”
One way to take control is to hash it out as openly as you can. “A lot of fear, anxiety, stress, worry, and anger can come up if left unaddressed,” Evans said.
As for my situation? We’ve got a meeting next week with our financial adviser. I feel my nerves racing already.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.
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