4 retirement saving myths debunked

When it comes to saving for retirement, there’s a lot of conflicting messaging out there. It’s no wonder that many clients aren’t sure of the best time to retire or how much they should have squirreled away to survive - and thrive - in their golden years.

Thankfully, we’re on hand to help by debunking some of the untruths about retirement expenditure patterns so you’re better placed to turn the real data into the best outcomes for your clients. So without further ado, let’s go myth busting.

Myth 1. People spend more in retirement

False! Recent research1 has shown that people spend less as they get older. In fact, a household headed by a person aged 80+ spends 43% less on average than a home headed by a person aged 50. Plus, when you factor in mortgages that figure rises to 56.4%.

Myth 2. Most retirement expenditure patterns follow a U-shaped path

False! The U-shaped expenditure pattern (indicating that people spend more as retirement starts and to meet care-related costs towards end-of-life) has been a long-held industry belief. However, the data into household spending (excluding care homes) suggests otherwise with just 6.4% of the 80+ age group putting money aside for long-term care needs. The author of the paper, Dr. Brancati, and her colleagues noted that rather than a U-shaped retirement expenditure pattern, there was more or a “retirement spending smile.”1

Myth 3. People with high net worth spend more in retirement

False! Do people with over $1 million in investable assets splash the cash in retirement? Not according to research by JP Morgan Chase2 that found “the drop in spending at older ages holds across wealth levels,” even (with minor variations) in the $2-$5 million and $5 million-plus wealth range. The report noted that the decline in spending wasn’t due to declining income but a change in behaviour linked to getting older.

Myth 4. End of life costs can be unmanageable

False! A long-held fear for many retirees is that they should plan for a large expenditure to cover medical or care expenses in later life. The End of Life data1, however, suggests that only 6% of people faced out-of-pocket costs for medical treatment outside the NHS in the final year of life. Property wealth was cited as a valid source of care funding with an average of £49,000 released by downsizing in the 80+ age range, and just one in five retirees selling their homes without buying another one before the age of 90.

To discover more truths about retirement spending that could help you generate the best solutions for your clients, check out our founder Abraham Okusanya’s new whitepaper on retirement spending patterns.

Based on real-life statistics, the fascinating whitepaper explores the latest data to uncover the facts about everything from risk appetites to end of life costs.

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References

_(1) Brancati, C., Beach, B., Franklin, B., and Jones M., (2015) Understanding Retirement Journeys: Expectations vs reality. International Longevity Centre, UK, Dec. 2015 http://www.ilcuk.org.uk/index.php/publications/publication_details/understanding_retirement_journeys_expectatiaons_vs_reality_

(2) JP Morgan Chase (2015) Spending in Retirement https://am.jpmorgan.com/us/institutional/library/retirement-spending


Toyosi is the Pension & Technical Consultant at Timelineapp. His experience is in Financial Services and consulting (“Big-4”). Toyosi has the IMC qualification and is a member of the CFA Society of the UK and the Chartered Insurance Institute. Toyosi is one of our content contributors and is often writing articles on retirement and the sustainable withdrawal framework.

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