As an IMRF member over age 40, you need to plan for your eventual retirement, and estimating your future spending is a key component of this process. When calculating the needed retirement savings, a consistent rate of spending is sometimes assumed, but research shows that retiree spending does not remain constant throughout retirement. Retirees spend more in early retirement and gradually decrease their spending as they age, according to the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS). On average, retiree spending declines by about 2% annually.
Research found that nondiscretionary spending (including essential and recurring expenses such as housing, food, and utilities) was higher than retirees’ guaranteed income for a brief period at the start of retirement. However, that spending level is short-lived. After a few years, retirees adjust and gravitate toward spending close to their guaranteed income.
Most of the decline in retiree spending is driven by nondiscretionary expenses. As retirees age, they spend less on food, housing, and transportation. Some discretionary spending on things such as entertainment and travel also declines as retirees age.
Although spending on healthcare will likely increase over time, research shows that the decrease in other spending is greater than the increase in healthcare spending.
For assistance in determining how much money you need to save for retirement, click
here to read an article from AARP on the four factors that will help you answer this question.
