Tue, 16 March 2021 | retirement
T. Rowe Price, a global investment management firm and a leader in retirement, has published a white paper analyzing retiree spending habits, and found that retiree spending declines annually by 2%. This finding is significant because conventional retirement income planning assumes that retirees want to maintain a certain standard of living or a certain level of spending. However, the data suggests that retirees tend to adjust their spending to match their income so that they can avoid drawing down their assets. In particular, the analysis reveals that retirees choose to adjust their nondiscretionary spending (e.g., food and shelter) to match their guaranteed income (e.g. Social Security income, pensions), challenging the conventional notion that these expenses are truly fixed.
T. Rowe Price's research suggests:
"Understanding how retirees spend is crucial to aligning retirement income solutions," said Sudipto Banerjee, vice president, Retirement Thought Leadership at T. Rowe Price. "Plan sponsors and financial professionals need to understand the motivations behind retiree spending in order to provide optimal retirement income solutions."
ABOUT THE RESEARCH
T. Rowe Price used data from the Health and Retirement Study (HRS) and its supplement Consumption and Activities Mail Survey (CAMS), produced and distributed by the University of Michigan. T. Rowe Price specifically used data from the original CAMS cohort first interviewed in 2001, following the same group of retirees from 2001-2015. T. Rowe Price's final analysis sample consisted of 1,470 households. All spending and income numbers were inflation adjusted using the consumer price index and presented in 2019 dollars.
Source: T. Rowe Price