The midlife crisis (spending crisis) – a wealth of common sense

In reality, life and expenses are often bumpy.

from JP Morgan Guide to Retirement provides a nice overview of how retirees’ expenses change as they age.

These are the average spending levels for retired households with €250,000 – €750,000 in investable assets:

Here are the average spending levels for retired households with $1-$3 million in investable assets:

The amounts are not as important as the trend. You may see spending spikes around retirement age and then decline as you get older.

This trend is also supported by BLS data:

This starts earlier and shows that expenses increase as you get older, peak around age 50 and then slowly decline.¹

The reasons for this are quite clear.

In your forties and fifties you generally have more responsibilities. Maybe your children are still on the payroll. Maybe you pay tuition. Maybe you have aging parents who need help.

You are in your highest earning years, so there is also a lifestyle factor.

Your expenses are higher in the first years of your retirement because your health is also better. It’s much harder to travel and be on the road in your 70s and 80s than it is in your 50s and 60s.

Harvard researchers looked at the relationship between health, life satisfaction and consumption in a piece called What good is wealth without health?

It’s not surprising that your life satisfaction decreases when you’re not healthy. But look at how the gap widens when you want to spend more money when you’re sick:

Here are my main takeaways from all these charts and data:

Spend it when you can enjoy it. Many retirees are reluctant to spend money for fear of outliving it. But if your wealth peaks when your health declines, the money isn’t as satisfying.

You should spend more money if you have the opportunity to enjoy it.

A bigger pile later in life can’t buy back your healthy years.

You must have multiple retirement plans. Then my colleague Tony Isola creates retirement plans for clients. He is prioritizing a spending plan for the first decade to take into account the fact that most people no longer have health, but rather wealth.

Retirement planning should take into account how your lifestyle will change as you get older.

Maybe your power should peak earlier. Spending peaks in the 50s for the average household, but I suspect the highest net worth is somewhere in the 60s to 70s age range.

I’ve been thinking lately that it might make sense for your net worth to peak in the mid-50s, while your expenses do.

Spend some of your money while you are healthy. Spending will likely decline in the 1970s and 1980s, when it is less comfortable to travel and be active.

When your health deteriorates, all you have are memories of more active experiences.

Create them while you still can.

Further reading:
How to beat the 4% rule

¹Interestingly enough, research shows that your happiness also bottoms out in middle age, when you spend the most money.