Back when I was packing lunches for three kids, the deli counter
was a regular stop on my circuit around the grocery store.
Inevitably, I found myself in line behind one or another older
couple who took what seemed like forever--sampling this, discussing
that--before making their selection. ("One-eighth of a pound of
ham, please. Thinly sliced!") I may have been in a hurry, but these
folks had all the time in the world.
That leisurely approach explains, in part, why you may be better
off in retirement than you expect. In several studies on household
consumption, Erik Hurst, of the University of Chicago, and Mark
Aguiar, of Princeton University, report that spending on food drops
significantly in retirement, not because retirees are eating less
but because they have more time to shop and compare prices (and,
apparently, agonize over choices at the deli counter).
The savings don't extend only to meals eaten at home. Retired
people spend 31% less on eating out than the still-working,
according to Hurst and Aguiar, not because they're scrimping but
because they no longer grab $8 sandwiches at lunch places or stop
for takeout on the way home from work. Instead, they reserve their
eating-out dollars for table-service restaurants.
As for other expenses, retirees spend less on costs connected to
commuting and wardrobe maintenance, such as dry cleaning, but as
much or more (at least at first) on leisure activities, such as
going to the movies, golfing and travel. Because the savings in
some categories outweigh the spending in others, "on average,
people are doing pretty well," says Hurst.
Make it personal. That's reassuring, but it also reinforces a
concept long studied by researchers and already known to the rest
of us: Consumption depends on your situation. When you have
teenagers, you spend more on food, clothes and education than you
do as an empty nester. When you're paying a mortgage, you spend
more on housing than you do once your home is paid off. When you're
throwing everything you have at retirement saving, you're not
jetting off to Europe. In retirement, you may splurge on travel at
first; later, you pay more for health care.
To some extent, retirement planners take such considerations
into account. For instance, many recommend that you save enough to
replace 80%--not 100%--of your preretirement income over a 30-year
retirement. The formula assumes that you will no longer be paying
payroll taxes, saving for retirement or covering work costs, and
that you may be in a lower tax bracket.
It also assumes that your spending will stay constant (adjusted
for inflation) throughout a 30-year span, as opposed to fluctuating
according to your circumstances. That assumption is no truer after
you retire than it is before, says David Blanchett, head of
retirement research at Morningstar, and it can lead you to
overestimate your income target. In fact, many families can get by
on only 60% of preretirement income.
For my part, I mostly bring my lunch to work and prepare my
other meals, so I don't see my food costs going down much. Few
would accuse me of spending lavishly on work outfits--no savings
there. Because my company subsidizes my commute, my transportation
costs could actually go up. But since I plan to downsize and retire
my mortgage, my housing expenses will certainly go down. Overall, I
think my own replacement rate will be closer to 70%. I am going to
run the numbers to be sure.
And that's what all of us should be doing, says Blanchett.
"Retirement is the most expensive purchase you're ever going to
make. It makes sense to figure out what it's really going to