One of the biggest issues that younger, middle-aged and older workers have to consider is something that nowhere close to enough workers really give enough thought to: what really happens going into and then during the retirement years. It turns out that actually retiring is just not as easy as it is to define. A key consideration ahead of time is that spending changes around retirement are a crucial part of life.

It has long been known that many retirees spend more, some much more, than they have budgeted for or expected. Now there is some fresh data that details some of the retirement spending habits. The Employee Benefit Research Institute (EBRI) has now issued a very long, detailed report about just what changes in household spending take place after retirement.

This study analyzed the spending patterns of a fixed group of households and tracked how household spending patterns changed during the first six years immediately after retirement.

There may be some obvious points here, but there were some very big surprises as well. As you could have probably guessed, household spending dropped at the beginning of retirement. What was surprising was that the drop in spending seems far less than what many people might guess, and that brings a serious issue for everyone’s retirement plans. The EBRI said:

In the first two years of retirement, median household spending dropped by 5.5 percent from preretirement spending levels, and by 12.5 percent by the third or fourth year of retirement. But the spending reduction slowed down after the fourth year.

Although average spending in retirement fell, a large percentage of households experienced higher spending following retirement. In the first two years of retirement, 45.9 percent of households spent more than what they had spent just before retirement. This declined to 33.4 percent by the sixth year of retirement.

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Another surprising observation was made when it comes to that group that actually raised spending. The EBRI said that households spending more in the first two years of retirement were not just exclusively high-income households. They showed that they were distributed similarly across income levels.

Additional points from the EBRI report were seen as follows:

• In the first two years of retirement, 2 in 5 households (39.3 percent) spent less than 80 percent of their preretirement spending. By the sixth year of retirement, a majority (53.1 percent) of households did so.
• In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their preretirement spending. By the sixth year of retirement 23.4 percent of households still did so.
• A very small percentage of the household budget was spent on durable goods. The median household (half above and half below) spent nothing on durables in retirement.
• Transportation spending showed the highest drop in the first two years of retirement. Median spending on transportation went down by 25.1 percent in the first two years of retirement, although the reduction in subsequent years was small.
• The median household had a mortgage payment before retirement but none after retirement.

The full EBRI report contains much more detailed data. It may be dry due to the subject matter, but anyone who actually plans to make it to the retirement years should consider reading this.

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