Your Money Matters


May 2011 Issue




Spending Patterns in Retirement



Retirement is a period of life characterized by feelings of happiness, excitement, freedom, and relief. What if you were to add financial peace of mind to that mix?

What gives you that peace of mind can be very different from your neighbors and co-workers.

More important than what one earns in retirement is what one needs to earn in retirement – and that need may only be addressed once expenses are fully understood. It’s absolutely critical to have enough income to cover the Essentials of retirement, such as food, shelter, and transportation. And virtually all retirees also want to have enough income to cover the Lifestyle expenses that make retirement enjoyable, such as travel and dining out. In order to set a realistic target for investment income in retirement, investors need to estimate their annual Essentials and Lifestyle expenses in retirement, and subtract expected government transfer payments, such as CPP and OAS.

Planning for retirement income usually accepts that retirees can get by on far less than their pre-retirement income, as their expenses will be lower. But when it comes to household needs, spending barely declines at all, according to a 2007 Statistics Canada Report.

Looking at spending and income patterns from 1982 and 2008, StatsCan found Canadians in the early 70s spent only 5% less on goods and services than they did in their late 40s. Meanwhile their incomes declined by 16%. The study included all items that meet the consumption needs of household members, but excluded gifts and charitable contributions, pension plan contributions, insurance premiums, taxes and savings.

Some of those excluded costs, like pension contributions, would have added substantially to the cost of living in their 40s. On the other hand, insurance premiums may have been higher among retirees.

While total spending was little changed, what they spent their cash on changed. In 1982, household heads in their late 40s, spent more than one-third on food, clothing, personal care and health care. In their 70s, that percentage fell to 28%. Not surprisingly, healthcare on its own rose from 3% of spending to 6%.
In their 40s, household heads spent just over 30% on residential costs. Among retirees in 2008, that had risen to 43%.

It takes planning to achieve a financially healthy retirement. But with the help of your financial advisor, it doesn’t have to be difficult. To learn more, give us a call, or set up an appointment to discuss your individual situation.


Theresa Wever and the Money Concepts Team.

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