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The Retirement Spending Smile

Posted April 30, 2022

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How can you know what to expect if you have no experience or information to base your expectations on? Unfortunately, you don’t know what you don’t know. The unknown can be intimidating, exciting, scary, anxiety-ridden, and inviting all simultaneously. For many people, this is often what retirement planning can feel like.

You’ve never retired before, so how do you know how much cash flow you will need or how much you will spend in the first few years? How can you anticipate how much you will need to save for any unexpected medical expenses or other emergencies that come up along the way?

If you are approaching retirement, these are questions you’ve likely been pondering for quite some time now, and you probably have an arbitrary number in mind, but you can’t know for sure if it’s too much, too little, or just right.

This is why it’s essential to work with a trusted financial advisor as you plan for retirement. From years of experience within the industry and having been through this process before with others in a similar situation, a financial advisor can give you tools and resources to put you on the right track when it comes to saving for and planning for retirement.

Tools To Help You Plan for Retirement

Although a financial advisor cannot give an exact number for how much you will need to save for retirement, we can use the 25x Rule to provide you with an estimated cost.

The 25x rule has been around since 1994, when William Bengen coined the 4% rule, a counterpart to the 25x rule, and it provides a rule of thumb for how much one needs to save for retirement.

Based on Bengen’s findings, the 25x rule states that to save enough for retirement, you will need to save 25 times the amount of your annual expenses for maintaining your current lifestyle for a 30-year retirement and not run out of money.

Another tool we can use to help you prepare for retirement and how much you will need to save is examining the “Retirement Spending Smile.”

What Is the Retirement Spending Smile?

When you first retire, you’ll likely embrace the golden years. Maybe this will include more traveling, taking up those hobbies you didn’t have time for before, spending more time with family and friends, eating out, and simply indulging in life’s simplest pleasures.

These new expenses and new adventures can cause your retirement spending to soar over the first few years. However, the excitement of doing something new every day will likely fade, and you won’t be incurring as many additional expenses as you once were, causing your retirement spending to go down. But as years go by, the amount of money spent on health costs will rise, offsetting this amount and causing your expenses to increase.

This is what we like to call the Retirement Spending Smile or the go-go, slow-go, and no-go phases.

David Blanchett’s 2014 article, “Exploring the Retirement Consumption Puzzle,” showcases the Retirement Spending Smile by looking at household survey data to track their inflation-adjusted spending through time.

Blanchett found that “on average, {a} household can expect to experience declining real expenditures through age eighty-four when real spending reaches a trough of $74,146. This reflects a nearly 26% drop in real expenditures. After this point, average real expenditures increase, though they do not necessarily exceed their initial retirement levels until retirees reach their mid-nineties” (Source: Retirement Researcher).

By looking at trends and researching how much the average retiree spends throughout various stages, you can better understand how much money you will need to save for retirement.

How We Can Help

Thayer Financial is proud to offer comprehensive retirement planning services. Through our conversations, we will walk through scenarios like the one above and help you understand how much you can plan to spend in retirement to enjoy the things you love most and ensure you can always meet your most basic needs.

Our ongoing retirement program includes a total wealth management solution that encompasses planning strategies built around your specific values/needs, business transition planning, tax planning, ensuring you have a solid estate plan with all the necessary estate planning documents, etc.

If you’d like to learn more about our retirement planning services and what you can learn from the “Retirement Spending Smile,” make your appointment with our team today!


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