The thought of retirement conjures a wide variety ideas and feelings for different people, some good and full of bliss, and others that are full of dread. One fear that many people have is outspending their retirement income.
In an Employee Benefit Research Institute (EBRI) Issue Brief, “Spending Patterns of Older Households,” the EBRI examined the spending habits of individuals in retirement. The overall results show that 59% of survey group spent less than their income, and 41% overspent their income. Of the portion that overspent, it was discovered that nearly half of the retirees outspent their income when they did not have regular income from a pension or annuity, whereas only a third overspent when they did have a pension or annuity. In addition, having a pension account correlated with surpluses: 71% of households with a surplus had a pension account or an IRA. For many retirees experiencing a budget deficit, that deficit was due to large medical expenses (spending 20% or more of their annual income). However, the largest expense across all groups was housing-related expenses, averaging 50% total of expenditures.
Having a solid plan for retirement and preparing for medical expenses and other hardships can be difficult to accomplish. Preparing early to have pension or annuity income in retirement is a great way soften or mitigate the impact of hardships and keep your retirement a blissful one.