Research shows that spending is often highest in the early years of retirement
When it comes to retirement spending, one of the common misconceptions is that a retiree’s expenses will remain the same throughout retirement. However, research shows that expenditures generally decline with age.*
Why is this the case? Typically, newly retired people spend more money than those that have been retired for a while due to more travel, recreation, or care for elderly parents. But over the long term, living expenses generally tend to decline, with a few exceptions, such as healthcare. Retirees in the highest age brackets usually stop spending money on durable goods, are less likely to make home improvements and may spend less money on travel, entertainment or meals out.
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Understanding the three phases of retirement
Retirees often move through three distinct phases of retirement as they age, and their income needs may change along the way.
- The early “Go-go years”: In the go-go years, income needs may be high, given this is a time when retirees are typically the most active. For example, during the go-go years, retirees may be spending more money on travel, entertainment, hobbies, a vacation home, home improvements, or their grandchildren.
- The middle “Slow-go years”: During this phase, income needs may begin to moderate. As the name of this phase suggests, the slow-go years are a time when retirees typically start slowing down. That may mean less travel and entertainment or even downsizing.
- The later “No-go years”: As life begins to wind down, income needs in this phase may be low. This is a period of time when retirees are typically the least active. They may prefer to stay close to home, not do much or spend much.
To help ensure you have lasting income through all of retirement’s phases, ask your financial professional if an annuity with protected lifetime income may make sense for part of your overall retirement portfolio.