Most of the ink spilled in talking about retirement is limited to the investment side of the equation. How much do you need for retirement? How much can you withdraw from your portfolio in retirement? How should I invest my retirement assets? And obviously, all these questions are critical. But just as important and not talked about as often is the amount of spending in retirement. I’ll touch on some of my thoughts on this topic and my personal experience.

A few weeks ago I was reminded of an old saying, ‘The easiest way to double your money is to take it out of your pocket, fold it in half, and put it back in your pocket’. Another one I like goes something like, ‘a dollar not spent is a 100% guaranteed return on your money’. These are somewhat old school thoughts. It reminds me of how my grandparents funded their retirement with basically a 100% cash allocation and tight control on spending. Just getting them into bank CDs was a major multi year effort. However, there is a ton of wisdom in some old school thoughts. And spending in retirement is just as important as investing in retirement. The three aspects of spending in retirement are the absolute level of spending, the yearly change in spending required to maintain the same lifestyle, and the amount of flexibility in the spending level. Here I want to focus on the absolute level of spending.

Your spending level in retirement can be a lot less than what most retirement resources tell you. The typical recommendation is to plan for 85% to 100% of your pre-retirement spending. Obviously, this is highly individual but I think its important to point out that you can have an amazing retirement by spending a lot less than you did pre-retirement. At least that has been my experience. Nina and I spend approximately half of what we did before we left our careers, almost nine years after the fact. Below is our level of spending by year as a percentage of our pre-retirement spending. 2005 was our last year of pre-retirement spending so that is the base year.

Change from pre retirement spending levels sep 2014


As you can see it fluctuates quite a bit but the general trend has been down. And our quality of life is infinitely higher. Not working in the traditional sense opens up a host of possibilities to spend less. For example, we spend less in “rent” (RV camping fees plus fuel) than we spent on association fees for our condo in San Francisco. And don’t even ask me about property taxes. Working has an implied cost that is commonly overlooked (clothes, commuting, etc…). When you remove the costs and constraints of working it can translate into a needing lot less to retire than if you planned for 100% of pre-retirement spending. Some times less is truly more. This is a huge topic and other people cover it a lot better than I can give it time. A good resource and community on spending less can be found at  Mr Money Mustache . How would your life decisions change if you could spend half of what you spend now?

Once you have the absolute level of spending down then the task moves to managing the change in spending every year and the surprises that inevitably come down the line to throw your plans into the air. Anyone notice 2009 in the table above? That was not really a surprise but in late 2008 we decided to move back from Hong Kong to the US. The surprise was the sticker shock from the cost of the move. What better time to be flexible, right? I took a job in the US and negotiated a decent relocation allowance that paid for our move back. I stayed in the job for just less than year and during that time we lived the high life and started planning our RV adventure. The increase in spending from 2008 to 2009 was pretty much covered by my salary (I still withdrew from my retirement assets that year but it was a small percentage). In 2010 we moved into the RV and the rest is history so to speak. What I think is key here is that you have more control and flexibility than you think. If there is another big surprise down the road whether it be from a big spending increase or a big portfolio loss I have the flexibility to cut spending and/or increase income.

In summary, you don’t need to spend as much in retirement as the common wisdom suggests. This also means you don’t need as much to retire as well. Controlling spending is as big a part of successful retirement as the investment side of the equation. You have more control and flexibility than is commonly thought.

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3 thoughts on “ The flip side of a successful retirement: spending

  1. Paul, I really like this post. I’m still far enough away from retirement that I have lots of time to change the outcome but I’m also close enough that I’m worried. 🙂

    One item I don’t see mentioned prominently enough in the main stream media articles on this topic is the huge difference in income needed if you still have a housing expense – regardless if it’s rent or a mortgage. With a lot of mortgages running 40% of gross wages, getting rid of that before (or soon after retirement) would have a gigantic impact on how much income you needed.

    At the moment my plan is to shoot for mortgage free. The 5th wheel is already paid off but not sure it’s going to still be functional 30 years from now.

    1. Most just consider a mortgage payment just part of pre-retirement spending. That’s one of the reasons some say to plan for 100% of pre-retirement spending. But you’re right, not having one, makes a huge difference to income needs in retirement especially if you’re in one of those areas of the country where a mortgage payment can be as high as you mention. Of course, when you retire you can practice geographic arbitrage and choose a home in a much lower cost area as well. Lots of options.


  2. Paul, I actually found you through Mr. Money Mustache. I’ve never been much of a spender and was excited to read Early Retirement Extreme by Jacob Fisker, who spent less than $10,000 a year for a while. However, I couldn’t get my partner on board until I got her reading MMM since he is much less extreme. I still like to read MMM and highly recommend him as well, but he is very hands off with investing, which is thankfully where you come in!

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