A substantial number of retirees are spending more than they expected to on living expenses — and their confidence in being able to meet their lifestyle goals in retirement is taking a hit, says a recent study.
Retirees are spending more than they expected since they left the workforce in a variety of areas, according to the LIMRA Secure Retirement Institute. Surveyed retirees report that they spend on average 50% of their incomes on basic living expenses, such as housing, food, utilities and clothing, with an additional 13% spent on non-discretionary health and long-term care (LTC) costs. Moreover, many underestimated what they would spend in those areas, with:
- 26% saying their basic living expenses in retirement were higher than they expected; and
- 40% reporting that they underestimated their expenses for health care and LTC.
Not surprisingly, those higher-than-expected expenses hurt many retirees’ confidence in their ability to enjoy the lifestyle they had anticipated. LIMRA says that 60% of those who miscalculated their basic living expenses were not confident that their lifestyle would meet their expectations. And almost one-third of those with higher than expected expenses for health care and LTC lost that confidence.
LIMRA also found that the results were more pronounced for women than men. Women are 50% more likely than men to say that their basic living expenses are somewhat or significantly higher than they expected before they retired (30% versus 20%, respectively). The study further shows that women are somewhat more likely to experience higher-than-anticipated health and LTC-related expenses than men are (43% compared to 39%).
Given that women’s average life expectancy is longer than men’s, that is a bit more ominous for them. LIMRA found that far fewer women than men are confident that their financial resources will last if they live to age 90 — 49% of men were confident about that, but only 36% of women were.
LIMRA emphasizes that when you consider that retirees with household incomes of $35,000 to $49,999 spend nearly 60% of their income on basic living expenses, the added unexpected costs could substantially affect their retirement confidence.
The report suggests that consumers who conduct retirement planning activities or have a formal plan prior to retirement have a greater likelihood that actual expenses are consistent with anticipated expenses. Nearly 70% of retirees with a formal written plan say discretionary expenses are about the same as expected, compared to 61% of retirees with an informal plan and 51% of retirees without a plan, the report shows.
LIMRA conducted the survey in early 2017, polling more than 2,000 U.S. consumers ages 50-79 who had retired at least one year earlier, had annual household incomes of at least $35,000, and were involved in the household’s financial decisions.
