Perhaps there’s an outdated perception out there that many couples retire at the same time, essentially flipping a switch to go from “working” to “retired” at once. Turns out a majority of American households don’t retire all at once.
Most households experience significant spending volatility at the beginning of retirement with six in 10 experiencing both major ups and downs from year to year.
J.P. Morgan Asset Management Retirement Insights Group today released a new paper, Real-world retirement: Three new spending surprises, which found that 53% of American households do not in fact retire “all at once.” This is due to some individuals still doing some work in “retirement” and spouses retiring at different times.
Leveraging anonymized data from more than 280,000 Chase households, the research explores how real-world spending patterns of U.S. households can impact pre- and post-retirees as their focus shifts from saving to spending. The results expand on the team’s previously published research, which revealed a lifetime spending curve, a retirement spending surge, and spending volatility at—and throughout—retirement.
The research found partially retired households tend to spend more money in the years preceding retirement and continue to spend more post-retirement than their fully retired peers. On average, post-retirement spending temporarily increases for partially retired households with pre-retirement income of less than $150,000.
Most households experience significant spending volatility at the beginning of retirement with six in 10 experiencing both major ups and downs from year to year. Spending fluctuations at the beginning of retirement are known to heighten sequence of return risk, when early and unexpected withdrawals can damage overall long-term returns.
In light of these findings, the paper released today and authored by JPMAM Retirement Strategist Sharon Carson, says plan sponsors can help participants prepare to retire on their desired timeline, balance the risks associated with longevity and spending volatility, and gauge whether flexible retirement income options might help them meet their stable expenses.
The paper delves into each of the spending patterns—lifetime spending curve, a retirement spending surge, and spending volatility in retirement—and their implications for plan sponsors and financial professionals dedicated to helping pre-retirees prepare for—and retirees maintain—a secure lifestyle in retirement. It also gives special consideration to planning for increases in healthcare and long-term care costs.
In concludes by noting plan sponsors may also want to help participants determine whether flexible retirement income options can help meet their stable spending needs in retirement.
• Read the full paper at this link: Real-world retirement: Three new spending surprises
SEE ALSO:
• Folly of ‘Timing the Market’ Explained in JPMAM’s 2024 Guide to Retirement
• Retirement at 65 ‘Not Achievable’ Say Most Near-Retirees
• Retirement Income: Participant Needs Trump Demand
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.