NJ Cops Jan19 | Page 68

FINANCE How retirement spending changes with time Once away from work, your cost of living may rise before it falls New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? This concern is legitimate. Many households “live it up” and spend more than they anticipate as retirement starts to unfold. In 10 or 20 years, though, they may not spend nearly as much. The initial stage of retirement can be expensive. BRUCE Looking at mere data, it may not seem that way. LINGER The most recent Bureau of Labor Statistics fig- ures show average spending of $60,076 per year for households headed by Americans ages 55-64, and mean spending of just $45,221 for households headed by people age 65 and older. Affluent retirees, however, are often “above average” in re- gard to retirement savings and retirement ambitions. Sixty-five is now late-middle age, and today’s well-to-do 65-year-olds are ready, willing and able to travel and have adventures. Since they no longer work full time, they may no longer contribute to workplace retirement plans. Their commuting costs are gone, Bluelinebeasts.com for all your thin blue line apparel, novelty gifts and workout supplements Interested in having us attend your next PBA fundraiser and donate to your Local... Contact us at [email protected] Follow us on Instagram and Facebook @bluelinebeasts 68 NEW JERSEY COPS ■ JANUARY 2019 and perhaps they are in a lower tax bracket as well. They may be tempted to direct some of the money that they would otherwise spend into leisure pursuits and hobbies. It may shock them to find that they have withdrawn 6-7 percent of their savings in the first year of retirement, rather than 3-4 percent. Household spending usually levels out When retirees are well into their 70s, spending decreases. In fact, Government Accountability Office data shows that people ages 75-79 spend 41 percent less on average than people in their peak spending years (which usually occur in the late 40s). Sud- den medical expenses aside, household spending usually lev- els out because the cost of living does not significantly increase from year to year. Late-middle age has ended and retirees are often a bit less physically active than they once were. It becomes easier to meet the goal of living on 4 percent of savings a year (or less), plus Social Security. Later in life, spending may decline further. Once many re- tirees are into their 80s, they have traveled and pursued their goals to a great degree. Staying home and spending quality time around kids and grandkids, rather than spending money, may become the focus. One study finds that medical costs burden retirees mostly at the end of life. Some economists and retirement planners feel that retirement spending is best depicted by a U-shaped graph; it falls, then rises as elders face large medical expenses. Research from investment giant BlackRock contradicts this. BlackRock’s 2017 study on retiree spending patterns found simply a gradual reduction in retiree outflows as retirements progressed. Medical expenses only spiked for most retirees in the last two years of their lives. Retirees in their 60s should realize that their spending will likely decline as they age. As they try to avoid spending down their assets too quickly, they can take some comfort in knowing that in future years, they could possibly spend much less. Bruce Linger, CFP®, CRPC®, CCFS™, is a registered representa- tive and investment advisor representative of Lincoln Financial Advisors Corp., a broker-dealer (member SIPC) and registered investment advisor, 61 S. Paramus Road, Suite 425, Paramus, NJ 07652, 201-556-4564, offering insurance through Lincoln affili- ates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients.