How might my spending change over time in retirement?

Category: Financial Planning&Retirement

In May, the Institute for Fiscal Studies released one of the first pieces of academic research into the spending of British retirees. The report looked at changes in spending throughout retirement over time.

Perhaps the most important conclusion is that those who have not yet retired shouldn’t expect their overall spending to fall sharply during retirement.

What does that mean?

Average total household spending per person tends to rise broadly in line with inflation through retirement, and spending increases at a higher rate than inflation for those under eighty. After this point, spending increased at a lower rate and, as such, decreased in real terms.

It may be the case that your financial plan relies on your spending in retirement to fall over time in real terms. If so, you are working on the premise that you will be different to most other retirees, which might not be realistic.

One factor driving this is that the research looked at the whole retired population. For many retirees, the State Pension is their primary source of income, and the amount claimants get has risen at a higher rate than inflation in recent times.

Does what retirees are spending on change over time?

The IFS study looks at this and makes some points:

  • Spending on holidays increases up to the early eighties and only starts falling from the mid-eighties. Other UK research has confirmed a similar pattern, indicating that most people only begin reducing the number of holidays they take each year from the mid-seventies onwards.
  • Motoring expenditure falls steeply for most retirees once they hit their late seventies. Fewer people drive as they age, and those who do tend not to go as far. The lack of a daily commute is a definite factor here.
  • Spending on food outside the home tends to increase when people retire and only starts decreasing for most in their eighties.
  • Spending on food inside the home falls with age, which the IFS suggest may be due to falling appetites and having more time to shop carefully.
  • Average spending on household services such as home help and cleaning increases through retirement. When considering how your spending might change in retirement, it seems sensible to plan for this.

If you are considering retirement, a financial planner can help you develop a robust plan. If you want to see how we could help, feel free to book a free no-obligation chat here.

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