We live in a day when we are bombarded with theories, ideas and prognostications about retirement. It’s a vitally important topic and worthy of some careful study. Unfortunately, the quality of the material you find on line is often wanting. Like most readers, I have just survived the annual explosion of Medicare supplement plan advertisements. I could not wait for December 7 to arrive so that life could return to normal with ads for cars and prescription meds.

Moneywise just published an article with data gleaned from the Labor Department’s Bureau of Labor Statistics about what retirees spend and how. Needless to say, financial planning is a “custom fit” based upon who you are, what resources you have and where you live. But almost as annoying as the Medicare supplement ads are the proliferating articles beginning with: “I’m 62 and have a $2,000 monthly pension and $300,000 in the bank. Can I retire?”

So, let’s look at what the statisticians tell us based on national data. The average retiree is spending $4,600 a month or about $55,000 a year. About $1,700 of that or 36% is being allocated to housing. Another $681 of that is spent on transportation or 15%. Then we have health care at $628 a month or about 14%. That number is just about the same as what retirees spend on food; roughly $20 a day. These “core” expenses sum to $3,600 a month signaling that another $1,000 goes to “everything else.” Analysis of data from 2014 which includes variations based on age can be found here: https://www.bls.gov/opub/btn/volume-5/spending-patterns-of-older-americans.htm.  Since then, it is fair to suggest that housing costs have risen driven first by price and now interest rates. Food costs are also on the radar although inflation in that category seems to be moderating.

Geography is a factor. New England, New York and the left coast cost the most. Mississippi, Alabama and Oklahoma are at the opposite end of the cost spectrum. Live in those last three named states and realize you will need a car. But in more urban environments car expenses might be better deployed paying for rent. Country life may save you expenses on medical care but don’t expect the depth of medical service to rival the expensive places.

One topic mentioned in this arena is mortgage expense. Lots of seniors grabbed some low interest mortgage money during the last decade while rates were low. If they took that 3% money and put it into the stock market they did quite well as their home values went up substantially and $100,000 in an S&P500 index fund in 2018 is now closer to $177,000 five years later. Meanwhile a $367,000 “average” house five years ago now seems to be a $515,000 home. The problem for seniors seems to be that the strongest increase in prices came in the middle market such that downsizing in price may require reducing the home’s interior footprint.

Other sticky topics for seniors are transportation, dining out and vacation expense. Many retirees have difficulty accepting the idea that retirement might suggest transition to a smaller car, fewer meals in restaurants and a more modest “holiday” in Florida or at the Jersey shore.

The convention most heard in the financial service industry is the 4% Rule. It suggests that retirees need to budget based upon social security, pension income and not more than 4% of savings drawn in any year. The concept is that this funds a 25 year retirement while allowing the unspent principal to float on the seas of investment returns. Charles Schwab offers a fairly concise summary of this.  Beyond the 4% Rule: How Much Can You Spend in Retirement? | Charles Schwab  Bear in mind that your home equity (the difference between the value and the outstanding debt) is also invested money that may not be best employed sustaining bricks and mortar. While homes have historically been solid places to invest, that 40 year trend of sustained price growth was interrupted from 2007-2013 when average home prices declined. The St. Louis Federal Reserve tells that story here: https://fred.stlouisfed.org/series/ASPUS. The point here is not to become a renter or live in your car but to grasp that a lot of million dollar homes have not had the same rate of appreciation as their “average” cousins or money invested in stocks.

It’s self-evident that divorce cuts the asset pool in two or worse. As attorneys we try to tell clients their financial lives are fundamentally different after divorce than things were when a couple shares a residence and expenses. You should not be frightened. But you do need to be careful.