Study Finds Retirement More Expensive Than Commonly Believed
December 10, 2001
Financial planners often say that retirees need between two-thirds and three-quarters of their pre-retirement income in order to maintain their standard of living. But a study conducted by the Aon Consulting firm and Georgia State University says the three-quarters figure is about right -- although much depends on a retiree's specific situation.
- It is often assumed that spending in retirement declines as expenses such as commuting, business clothing, lunches downtown and similar expenses shrink or disappear.
- However, actual expenses for consumption declines very little in retirement -- while the big falloffs in expenses are from taxes and saving.
- For the one-earner family of a retired wage earner aged 65 and a spouse age 62 and a pre-retirement income of $50,000, overall spending declines only $603 a year in retirement.
- For a similar couple with pre-retirement earnings of $90,000 annually, the annual retirement savings is only $1,022, according to the study.
The survey also revealed that savings by active workers as a percentage of income is declining -- with the exception of the average couple age 50-to-64 making $90,000 a year.
The authors of the study emphasized that the numbers are averages and people should do their own calculations.
Source: Albert B. Crenshaw, "Life in Retirement Isn't as Cheap as Believed," Washington Post, December 9, 2001.
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