A retirement nest egg, whether it be a 401(k) or similar retirement account, usually takes decades to accumulate. So once you've retired, how long will it actually last? Ideally, it should remain, at least in part, for as long as it's needed. Of course, that all depends on the size of your withdrawals and overall spending habits. However, your spending in retirement may actually be less than you anticipate.
An in-depth analysis of retirees’ spending in their first 18 years of retirement has revealed statistics that may in fact reassure you. Ready for a boost in confidence regarding your ability to comfortably retire?
An in-depth analysis of retirees’ spending in their first 18 years of retirement has revealed statistics that may in fact reassure you. Ready for a boost in confidence regarding your ability to comfortably retire?
The Employee Benefit Research Institute (EBRI) studied how the non-housing assets of retirees changed during their first 18 years of retirement. The researchers found that retirees generally spend down their assets quite slowly. Specifically, those with less than $200,000 in non-housing assets at retirement had spent down an average of one-quarter of those assets. Retirees with $200,000 to $500,000 had spent down slightly more at 27%. Lastly, those with at least $500,000 at retirement had spent down an average of only 12%.
Granted, a few outliers spent most of their assets within the first 18 years. But more importantly, EBRI concluded that one-third had managed to increase their assets during that period. Not surprisingly, those with pensions were much less likely to have spent a significant portion of their assets. During the first 18 years, the median non-housing assets of pensioners had gone down only 4%.
The researchers concluded that the median ratio of household spending to income for retirees of all ages hovered around 1-to-1, inching upward with age. The trend suggests that a sizable number of retirees had avoided drawing down their assets altogether. Again, pensioners were best positioned to maintain their nest eggs.
The EBRI study suggests that, with reasonable planning, you won't have to necessarily be a millionaire to secure and maintain a comfortable post-career life. Having a couple million in the bank isn't a likely scenario for the average American by the time they retire. Thankfully, it's not a requirement. Through proper financial management, whatever assets you've accrued will enable you to thrive throughout the best years of your life.
