Do People Really Spend Less in Retirement?

A newly released research study casts doubt on the traditional notion that calculations of a person’s retirement nest egg should take into account a post-retirement spending dropoff.

RAND Corporation researchers Michael D. Hurd and Susann Rohwedder, in a project undertaken for the National Bureau of Economic Research, assert that spending in retirement only falls off by 1% to 6%, depending on the population group and how the falloff is measured, contrary to the often touted estimate that one needs 70% of pre-retirement income annually in retirement.

Hurd and Rohwedder contend that the spending decline seen in their analysis could be explained by:

  • the end of daily work-related expenses such as for clothing and restaurant meals
  • a sudden health problem
  • having more available time to economize on one’s spending habits.

“The increased leisure can be used to purchase goods more efficiently or to substitute home-produced goods for purchased goods,” the authors write. “In this interpretation, spending declines, but actual consumption does not.”

Those in less wealthy population groups showed a spending decline which the researchers attributed to being forced to retire because of health issues.

Hurd and Rohwedder also cast aside the traditional contention among some retirement researchers that Americans are poor retirement planners and reach retirement age with inadequate resources. After they stop work, the theory has held, the now-retired Americans assess their financial situation and cut back spending in response.

“We found little support for an explanation based on a lack of forward-looking planning,” the two researchers wrote. “…For most workers, retirement is a predicable event, and workers should be assessing continuously their financial situation so that they will not be surprised. They should have saved enough so that they would not have to reduce consumption at retirement.”

The research report is available by subscription at