My husband quit his full-time job in April and I'm worried about how much we'll spend now that he's traveling and we're doing some big jobs around the house.
No, I'm not crazy, and I'm not the only one. The problem is that the amount we spend each year is far from stable and predictable for the majority of retirees, according to a recent report.
And that means problems if you plan to make your retirement go smoothly.
“A majority of retirees experience significant changes in their spending patterns over time; about half experience continued volatility, or an annual change of 20% or more — either higher or lower,” Sharon Carson, a retirement strategist at JPMorgan Asset Management and the author of the report, told me.
The big problem, however, is that couples retire at different times and the implications that has for long-term financial security.
More than half of American households don't retire all at once, when you count individuals who are retired and spouses who retire at different times. As a result, 6 in 10 couples “experience volatility in spending early in retirement and experience both big ups and downs from year to year,” Carson said.
What is going on?
The concern is that spending increases early in retirement can seriously damage a retirement plan, as early and unexpected withdrawals can hurt overall long-term returns. One of our deepest fears about retirement is that we’ll outlive our money. So figuring out how much to withdraw from retirement accounts each year for living expenses is disconcerting. Take too much and the future can be bleak.
Read more: How much money should I have saved by age 50?
Retirees who take steps to increase their non-retirement portfolio income through strategies such as delaying Social Security checks until full retirement age, ideally age 70, or working longer, are best positioned to weather variable spending and withdrawals. But few do. More than 4 in 10 Americans turn off their Social Security benefits as soon as they become eligible, at age 62.
In reality, few couples retire at the same time. Of today’s retirees, only 11% left the workforce at the same time, according to a report from Ameriprise.
The good old 4% rule
We are constantly pushed to save as much as possible during our working years. When we retire, this shifts from saving to spending, and panic sets in.
How much someone can withdraw from their retirement accounts each year is unique to their circumstances. The 4% withdrawal rate is a figure that has been the standard for years and is still used as a flagpole, said the financial advisors I contacted this week. In other words, if you have, say, $1 million saved, you would withdraw $40,000.
But what if your expenses increase like partially retired couples? Oh boy, that could get messy.
The JPMorgan study analyzed spending patterns of more than 280,000 Chase customers. “These findings are important because an individual's financial life can be intertwined with that of a spouse,” Carson said.
Read more: Retirement Planning: A Step-by-Step Guide
She’s right. The traditional model for retirement spending has changed dramatically over the past two decades as dual-income couples have become the majority of American households. (Fifty years ago, spouses were the breadwinners in 85% of marriages, according to data from the Pew Research Center.)
“Retirement expenses vary from year to year and are far from stable and predictable for the majority of retirees,” Carson said. “When you factor in spouses who retire at different times, that's very significant.”
Cohabiting couples, she added, “have put a new spin on things, and some of the planning tools and conversations haven't quite caught up with that yet.”
The expectation is that our spending-as-the-world-is-on-fire phase after working will subside as we adjust to paying ourselves from our savings. But when couples work out their financial plan together, it’s not as simple as you might think.
Sure, we imagine that we’ll spend the first year or so ramping up our spending for travel and rewarding ourselves for our years of hard work, but then we slam on the brakes. That’s how most financial planners have typically approached the blueprint for couples budgeting for retirement: a gradual decline in spending to a steady, swirling level.
But that's not what's happening. “We thought, oh, we're probably going to see a lot of people scaling back their spending in retirement,” Carson said. “And we did downshifting, then we saw upshifting, and then we saw downshifting.”
These partially retired couples are also spending more to pay down their credit card debt, the report said. “So they're getting on a better financial footing, which is good news,” Carson said.
Hurrah.
Here's how couples who don't retire at the same time can deal with peaks in their pension expenses:
Have an honest discussion about expenses before either of you retires.
“Often times, retirement means that some income goes away and expenses increase because you now have time to do the things you’ve been putting off or dreaming about. That’s one of the most charged parts of the conversations I have with clients,” Stephanie McCullough, founder and CEO of Sofia Financial, told me.
Of course, things like spending and general money worries vary widely among us. “Everyone's situations are so different, it's hard to generalize,” said Christine Benz, Morningstar's director of personal finance and retirement planning. “A person's salary that's still working may or may not cover all of the household expenses. If it doesn't and the couple has to take some money out of the portfolio to cover their expenses, it's actually a great test, because people often have trouble spending their portfolio. This is retirement spending with training wheels.”
Make it easy for yourself to spend money
Spending in retirement should be, well, fun. It’s not always that way. “One thing that has surprised me in talking to people is that people who are retired or about to retire are extremely uncomfortable with enjoying their money or spending it at all,” said Aja Evans, a financial therapist in New York.
“Learning to spend comfortably and responsibly is just as important as saving and investing for your future. There can be a lot of guilt when it’s time to start living off your retirement and you don’t see any money coming in.”
One way to take control is to discuss it as openly as possible. “There can be a lot of fear, anxiety, stress, worry and anger if you don't address it,” Evans said.
As for my situation? We have a meeting with our financial advisor next week. I can feel my nerves starting to kick in.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Staying in Control at 50+: How to Succeed in the New World of Work and “Never too old to get rich.” Follow her on X @kerryhannon.
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