Staggered Retirement

Last week in our discussion of J.P.Morgan’s 2019 study Three Retirement Surprises we examined why the conventional wisdom of the 4% rule may not always apply. In a follow up study this year, they examined what happens to spending in households where couples do not retire at the same time. Their data concluded that partially retired households spend more, save less, and have more debt than those who are fully retired.

While their analysis goes into great detail and provides a framework for plan sponsors to consider, we wanted to examine what we can do to prepare ourselves.

There could be a variety of reasons the financial dynamic changes, but it is almost inevitable that some costs will rise while others may fall – the key is to find the balance and plan ahead. Healthcare, commuting costs, taxes and benefits will all fluctuate from what they were prior to one member of the household leaving the workforce.

The data showed that there was an increase in not only healthcare spending but also apparel, meals, and other entertainment. In an interesting twist though – these folks also used LESS of their retirement income versus those who fully retired. SO perhaps in the end it all balances out – no one knows. One might consider that when one partner continues to work, it could provide a feeling of financial stability for the couple. Since the household isn’t fully retired, there may be less concern about adapting to a reduced, static income. This is something we want to be aware of as adding to debt and overspending may cause problems once the other spouse retires.

It would be wise to talk to a professional to design a household budget if you plan to embark on this phased retirement journey. You will need to evaluate whether you still plan to maintain your current lifestyle, whether you will take social security earlier than expected, whether you will start using part of your retirement savings, and reflecting on whether having more time on your hands comes with more spending.

If you are considering retirement, we’ll leave you with AARP’s Retirement Calculator – one of many tools to check out to see how your finances would look.