Many new retirees actually spend more in the early years of retirement and even when spending drops it’s not that significant.
If you look at averages, it’s clear that spending drops after retirement. The problem is, are you average? Or a better question may be, do you want to plan your retirement income on being average?
If you do use a strategy to start retirement with a total income equal to your basic working income, what can go wrong? Worst case you have extra cash.
On the other hand, plan for 70% replacement and you are locked in to spending less and who knows what the worst case may be. It may mean living in retirement close to necessary spending alone … otherwise known as paycheck to paycheck.
Research (2015) from the nonpartisan Employee Benefit Research Institute (EBRI) finds that while average spending in retirement falls in the first two years in retirement, nearly half (45.9 percent) of retired households actually spent more than they did just before retirement. That declines over time, and by the sixth year of retirement, just a third (33.4 percent) spend more than they did preretirement.