A new study shows that retirement is not going as planned for many retirees.
Results from the 2022 Spending in Retirement Survey published by the Employee Benefit Research Institute (EBRI) found that retirees are spending much higher or a little higher than they can afford in 2022 (17% in 2020 vs. 27% in 2022).
Black and Hispanic retirees and those in the lower annual household income brackets and poor self-reported health status also indicated their spending is higher than they can afford.
Inflation Is Affecting Retirees
“Retirees, like the rest of us, are not immune from the high cost of living due to inflation and the increasing prices at the pump and for goods and services. For example, the pandemic forced many retirees to delay travel plans during the pandemic, only to incur higher costs associated with transportation, accommodations, and dining out.
Even if they paid off their homes, there are still repairs and maintenance costs, plus property taxes. They are finding that they are no longer willing or able to take on some of the home repairs themselves, only to find that tradespeople have raised their prices along with the cost of supplies. If they are living on fixed incomes, as many do, then they are feeling the squeeze more significantly than those who remain in the workforce.” says Myra Alport, Founder of Myra Alport Money Coach.
EBRI conducted the spending in retirement study during the summer of 2022. They surveyed 2,000 American retirees aged 62 and 75 to assess how spending patterns and retirement well-being have changed since 2020.
Among those who decreased either their essential or discretionary spending since the pandemic, the most common reason cited by roughly 9 out of 10 retirees was concern about inflation.
Approximately 7 in 10 retirees say they have three months of emergency savings. However, black and Hispanic retirees, those in lower annual household income segments, with inadequate financial knowledge, and poor self-reported health status, are less likely to report they have three months of emergency savings set aside.
Similar to 2020 survey results, 7 in 10 say Social Security is a significant source of their income.
Approximately half of the retirees said they spend less than $2,000 each month, while 1 in 3 spends between $2,000 and $3,999 each month. Sixteen percent spend between $4,000 and $6,999, with only 3% spending $7,000 or more each month.
Retirees Feel Frustrated
Retirees are frustrated with their retirement. On average, retirees rate their satisfaction in retirement as 7.0 in 2022, compared to 7.4 in 2020 (on a scale of 1 to 10). Similarly, retirees ranked their alignment of life in retirement with expectations with an average of 6.4 in 2022, down from 6.8 in 2020.
“The 2022 Spending in Retirement Survey reveals that certain measures of retiree well-being have stagnated or declined since the pandemic. Specifically, the average ratings for alignment and satisfaction have declined since 2020, while more retirees say that spending has increased and is higher than they can afford.
“Inflation appears to be a major driver of the misalignment between expectations and reality, a double-edged sword that undoubtedly increases actual spending but also reduces spending, likely out of a desire to protect their future purchasing power,” explained Bridget Bearden, Ph.D., research and development strategist, EBRI. “Having a spending plan before transitioning to retirement is important to retirement well-being.”
COVID-19 Wreaks Havoc on Retirement Plans
Erik Barnes, from Retirement Portfolio Partners, commented, “Retirees built up a lot of savings in 2020 and 2021 due to the covid-19 pandemic. Now that the world is opening back up, they can spend their money on things they planned on doing when they retired. However, when you add in inflationary adjustments to everything they want to do (travel, food, fuel, cars), you get an increase in spending.
They lost two years of their retirement, and now they are making up for it before age, and health won’t allow them to do the things they envisioned.”
Alport stressed that change is possible, “It all comes down to reviewing their spending and tweaking non-essential expenses. For example, dining out seems to be the largest expense for most people. For a married couple, is having two vehicles necessary? Perhaps it’s time to consider downsizing to a smaller place if housing costs become too prohibitive. For some, taking on a part-time job doing something they enjoy may help to bridge the gap too”.
The study included a sample of 1,998 American retirees between the ages of 62 and 75.
The majority of the retirees surveyed were in their 60s. The average birth year for the sample was 1955, reflecting an average age of 66 for year-end 2021. Median birth year and age were similar, at 1956 and 65 years, respectively, as of year-end 2021.
Survey respondents were 45% male and 55% female. Over half (56%) reported being married or living with a partner, and 44% reported being divorced, separated, or widowed.
EBRI Retirement Security Research Center, Alliance for Lifetime Income, LGIM, and Edelman Financial Engines provided financial support for the study.
“This study underscores how expanding availability of professional financial help and improving awareness of protected income options contribute to comprehensive spending plans for retirement and can improve retirement security,” said Jason Fichtner, Ph.D., senior fellow, Alliance for Lifetime Income & Retirement Income Institute.
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