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Understanding Spending Patterns in Retirement
Retirement is a significant phase of life that brings about changes in spending habits. The "Spending patterns through Retirement" report by the Retirement Income Interest Group provides valuable insights into how retirees' expenses evolve over time.
Key Findings:
Declining Spending with Age: The report highlights that real spending tends to decrease as retirees age, with an average reduction of about 2% per year after the age of 65. This trend is consistent across various countries, including New Zealand, the US, UK, and Australia.
Major Expense Categories: Housing, food, and healthcare are the largest expenses for retirees. Housing alone can account for up to 30% of total spending, while food and healthcare make up around 26% and 13%, respectively. These categories remain significant throughout retirement.
Lifestyle Changes: As retirees age, their lifestyles become less active, leading to lower spending on discretionary items like clothing, transport, and recreation. This shift reflects a natural progression towards a more relaxed and less costly lifestyle.
Precautionary Savings: Many retirees hold back savings to cover potential healthcare and later-life care costs. In New Zealand, around half of retirees are expected to spend some time in residential care, which influences their spending patterns.
Implications for Retirement Planning:
Understanding these spending patterns is crucial for effective retirement planning. It helps retirees set realistic savings goals and make informed decisions about their future. By anticipating changes in expenses, retirees can better manage their finances and ensure a comfortable and secure retirement.