![]() As a result, they may be able to allocate more of their savings to equities. And even if they don’t retire earlier, drawing down their savings slower than a spender would mean that they need less of their money right away. ![]() If a saver does decide to retire earlier, their time horizon in retirement will be longer. Next, consider your target allocation.As a result, they may be able to retire earlier than planned-potentially welcome news for many people. If a saver is likely to reduce their spending in retirement to maintain their savings balance, their assets will likely last longer. First, consider the question of retirement timing.Retirees who behave more like savers but have a spender’s plan in place may want to revisit some of their assumptions: Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Rowe Price Group, Inc., March 2021 analysis of Health and Retirement Study, public use dataset. Rather than keeping up with inflation, real spending by many retiree households actually decreases over time on a relative basis.īanerjee, Sudipto, Decoding Retiree Spending, T. Research shows that high-net-worth households tend to cut their real spending at a faster rate than retirees overall, while the real spending of low-net-worth households remains largely flat. When savers adjust their spending, they largely do so by choice rather than by necessity. This pattern more closely represents a saver’s behavior, which leaves more of their balance intact over time. Rowe Price research shows that overall retiree spending increases about two percentage points slower than inflation (about 1% per year in this example), which translates into an inflation-adjusted decline in spending over time. In this approach, a retiree who plans to spend $50,000 in the first year of retirement should expect to spend $51,500 in their second year, assuming an average inflation rate of 3% per year. Incorporating your actual spending preferences into your strategy can help you better estimate how long your assets can support you and can help you avoid making unnecessary compromises in your vision for retirement.įor instance, conventional wisdom-the spender approach-states that retirees’ spending will rise over time to match rising inflation. Spending behavior is an important factor in the success of any retirement plan. ![]() 4 A Slower Drawdown in Retirement Saving Means a Longer Time Horizon 3Īll of these actions translate into savings that last longer-as our research has shown that a third of retirees actually have higher balances partway through their retirement than when they started retirement, and at death, they have just as much money as they did when their retirement began.
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