Retirement Spending Patterns Vary

A recent study, “Spending and Investing in Retirement” by LIMRA and the Society of Actuaries offers insight into how people determine they are ready to retire and how they are faring in retirement.

The study found that retirees were spending more in retirement than they did beforehand. The post retirement cost participants most often overlooked are the rising costs of prescription drugs and gas, although the two greatest concerns among participants were — high medical expenses and long-term care expenses. Many of those surveyed do not have long-term health coverage, with most of them feeling as though they can’t afford the premiums. One female retiree from Arizona said, “I haven’t avoided it, I’ve thought about. But I don’t think it’s practical to spend thousands of dollars a year on something [long-term care insurance] that may happen.’ Interestingly, outliving assets was ranked last in the importance of six concerns by the retirees.

Retirement No Allocation “Trigger’

For most of the participants, retirement did not prompt a change in investment allocations, but some, mostly prompted by handing their money over to advisers, did shift more into equities. Those who adopted more conservative strategies generally said they were attempting to shield their nest eggs from market volatility, according to the report.

Many of the participants said they withdrew money from nonqualified plans and left their qualified plan money to continue to grow tax-deferred. The study also found most participants didn’t withdraw a set amount of money each month, but rather on an “as needed’ basis. One participant commented, “You automatically know what you can spend. You kind of go on automatic pilot and know how much is too much and how much is enough.’

Of the participants, only a few of them had purchased annuities and those had done so only at the suggestion of an adviser. Many of the participants thought they could do a better job of managing their money than insurance companies, though a few of the participants said they thought annuities were good for people who do not want to manage their own assets or who are financially unsophisticated.

The study was based on a focus group of retirees, who were between two and 10 years into retirement, with at least $100,000 of investable assets and who depended on that money to maintain their lifestyles because they lacked sufficient amounts of annuitized income from Social Security and defined benefit plans to meet all of their expenses.