Is every day a Saturday in retirement? That’s what behavioural scientists Dan Ariely and Aline Holzwarth claimed in a recent study about retirement income. The premise being that when you’re no longer working 40 hours a week (or more) all of a sudden you have 40 hours a week available to spend money. Every day is like Saturday. Not to mention, many of the things your employer used to pay for, such as coffee, a smart-phone, or gym membership, now falls on you.
The study’s conclusion? Retirees should expect to spend as much as 130 percent of their preretirement income after they retire. Yikes!
That flies in the face of typical retirement planning advice, which pegs the income replacement rate at around 70 percent of your preretirement income. A lot of expenses should disappear when you reach retirement age. Hopefully your kids have left home, and your mortgage is paid off. You’ll no longer have payroll deductions for income taxes, CPP, and EI. Say goodbye to the long, soul-crushing commute, along with the expensive business attire.
Because of these reasons (and others) some retirement experts, like Fred Vettese, even champion a much lower retirement income target of 50 percent of your income.
On the flip side, in this article about money myths, financial advisor Kurt Rosentreter seems to concur with the Ariely / Holzwarth study:
All the old retirement planning textbooks said you could expect to live off less than your working income (e.g. 70 percent). The reality of what we are seeing in the trenches doing this work everyday is that there are three phases: Age 60 to 70 where we are seeing as high as 110 percent of pre-retirement spending; age 75 to age 85 where costs can drop to 80 percent after the first spouse death; and costs in the final phase of age 85 onward than can be lower or higher depending on health care.
Every day is Saturday in Retirement
This study resonated with me because one of my biggest fears about retirement is that I’ll overspend and completely blow my carefully planned budget.
Why is that a fear?
We do spend more money on the weekend. That’s when we do our shopping, our leisure activities, and when we go out for dinner. Weekends can be expensive!
This gets magnified when we’re on holidays. Every day is Saturday when you’re on vacation, right? A couple of pints of beer (or 9 oz glasses of wine) with lunch, tickets to a museum, maybe go to a movie, it all adds up. There’s lots of free time and we fill it by going to places, doing things, and wining & dining along the way.
Don’t get me wrong. Most of this is planned spending. We save for our vacations so we can enjoy ourselves and indulge in interesting and new experiences. But that’s for a week or two every year. I couldn’t possibly keep up that spending pace for a month, a year, or for our entire retirement. Right?
I’m obviously projecting these feelings into my unknown and far-off retirement, but I wonder if this is a real fear for people, or if it’s just me.
I want to hear from retirees: Did you have an uptick in spending due to your increased free time in retirement? Is every day a Saturday in retirement?
Soon-to-be-retirees: Do you expect your retirement spending to be higher, lower, or the same as your current annual spend?
Let me know in the comments.