Only 1 in 5 Americans Plan to Spend Less in Their First Year of Retirement – Here’s Why That’s Risky

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• You must balance your spending while retired. 
• How much you spend your first year of retirement can set the stage for the future. 
• You want to make sure you have money set aside for emergencies. 
• Also: Are You On Track to Retire? Take This Quiz and Find Out (Sponsored) 

When it comes to retirement, we all hope there is plenty of money to spend to enjoy our golden years. Assuming you have saved up properly, have a decent amount of Social Security coming your way, and have some passive income, you can plan to spend and live quite well. At least, that’s what you are supposed to do, but another group of people think differently, according to this Nationwide Financial Survey. In this case, 1 out of every 5 Americans plan to spend less money in their first year of retirement than they currently spend. 

Nationwide Survey Results

It’s one thing to think about something potentially being true and another to realize that you are not alone in your thoughts. According to the Nationwide Financial Survey, there were three prevailing beliefs regarding retirement expenses. 

The first is that just shy of one-third of everyone surveyed believes that their expenses will increase during their retirement years. The second realization from this survey is that precisely 50% of those surveyed think they will keep their costs the same in retirement as they did before leaving the workforce. 

This leaves just 19% of people, and this group, or the one in five Americans I mentioned earlier, believes their expenses will decrease in retirement. Regardless of which group you or I fall into, not understanding how you will or should spend early in your retirement could make later years much more financially challenging. 

Start By Establishing a Baseline

Unless you have significant investments and are making a lot of money through dividends and interest, there is a good chance most people moving into retirement will be on a fixed income. This means that a strong budget will come in handy so you can keep spending in check. This is why, in your first year of retirement, it’s essential to establish a baseline of your fixed costs.

These fixed costs could include your mortgage or rent, car payment, healthcare, electricity, water, cable, etc. All of these costs should be well-known before retiring. By setting an initial baseline, you’ll know exactly what your actual costs and lifestyle budget need to be starting in retirement on day one. 

Avoiding Overspending

It should come as no surprise that one of the biggest difficulties during retirement is the urge to overspend. In your first year of retirement, you likely want to do some of the things you have been avoiding doing for years if not decades. This might be buying the sports car you’ve always dreamed of or taking that overseas vacation you’ve longed to do for years. 

This makes having a budget important as it helps you avoid overspending immediately. The biggest issue is that overspending in your first years of retirement will reduce your overall funds, which could leave you less money to spend five, ten, or twenty years from now. 

Budgets Usually Go Up

Unfortunately, the likelihood that your budget goes down in retirement isn’t probable as you will likely be required to spend more every year. This is especially true around healthcare costs, which will rise yearly, so you must ensure you have enough money to compensate for this increased budget. 

The same can be said for a renter, as your rent will only likely go up after a year, not down. This is why it’s so unbelievably important not to overspend: you don’t know and often can’t predict exactly what expenses will shift down the road. 

As a result, it’s better to have more money around by keeping your spending flat or decreasing rather than increasing your spending to buy something that will give you temporary satisfaction, like a sports car. 

If for no other reason, this is why it’s so important to have a good grasp of your spending early in retirement. All it takes is one sudden hospital visit or a new roof on a home that could suddenly impact your total retirement fund in a big way and leave you with even less to spend in total. At the very least, if you keep your spending in check, you can better budget for these emergencies without dramatically impacting your lifestyle.