Hearts & Wallets‘ latest market intelligence report, based on a survey of 5,846 U.S. households, highlights a growing need for guidance on areas of retirement that often aren’t part of retirement planning programs, including ‘chunky’ spending patterns, work capacity and suitable living arrangements among aging Americans.

Most retired households (84%) have encountered unexpected events compared to what they had envisioned for retirement, according to the findings from Hearts & Wallets proprietary data set. Many households realized they needed to adopt a more budget-conscious lifestyle and had to retire earlier than planned. However, a positive surprise included many respondents finding retirement more satisfying than initially thought.

To avoid the worst surprises in retirement, the study found people should have three to five times their assets-to-income. Cases of individuals needing to adopt a more frugal lifestyle than anticipated remain consistent until their retirement income replacement rates drop below 50% or lower. Many advisory services tend to exaggerate financial requirements by prescribing target retirement income replacement rates that hover narrowly around 80%, according to the researchers.

Financial Advice

Both professionally advised and unadvised households have similar chances of encountering surprises, Hearts and Wallets found. However, professionally advised households tend to experience more positive retirement outcomes–particularly in the $100,000 to under $3 million investable asset ranges–where they are more likely to enjoy having more time and less stress compared to unadvised households.

“In addition to income replacement, financial advice should help consumers to consider retirement surprises, work capacity, living situations and ‘chunk-or-nothing’ spending,” Laura Varas, Hearts & Wallets’ CEO and founder, said in a release of the findings. “A high priority should be on inspiring saving, so the 70.5 million households of all ages with less than $50,000 in assets have a minimum safety net as they age.”

According to Hearts & Wallets, enhancing personalized human capital planning could benefit the 88.1 million households aged 65 and above with a combined $19.7 trillion in assets. Furthermore, integrating advice on living arrangements could aid 23.3 million households in this age group with $14.1 trillion.

Chunk or Nothing

The survey also found addressing the needs underlying “chunk or nothing” spending patterns, which are comprised of significant one-time expenses versus minimal spending, would assist 18.9 million households aged 65 and above, with assets totaling $15.4 trillion.

Most retirees engage in “chunk or nothing” behavior, which Hearts & Wallets first began tracking in 2010. Some retirees take no or very little income from their retirement savings. Others take chunks out of necessity or for fulfillment. The behavior of taking “chunk or nothing” in retirement is prevalent, especially for households age 65-plus with under $500,000, but also occurs among wealthier households.

“Tapping into capital elicits the strongest emotional reaction from consumers of any qualitative topic Hearts & Wallets has examined,” Amber Katris, Hearts & Wallets’ subject matter expert, said in the release. “The financial services industry can do more to empower consumers who want or need to take these one-time funding chunks, which can often be at odds with annuitization.”

Heart & Wallet’s report “Getting Real About Retirement: Breaking Through with Better Solutions for ‘Chunk or Nothing’ Spending, Work & Real Estate” is based on the firm’s Investor Quantitative Database. The latest data was fielded from September 11 to October 6, 2023, with 5,846 U.S. households.