Planning for Spending Volatility in Retirement
Access to liquidity and a focus on growth could mitigate spending increases.
Retirees are likely to experience both increases and decreases in spending levels (e.g., volatility or fluctuations) during their retirement years. By planning for and being prepared to adjust to such volatility in spending, retirees can increase their odds of success in retirement.
Spending can fluctuate for many retirees
Sources of annual spending volatility
If retirees have insufficient liquid assets, they may be forced to take untimely distributions from their longer‑term investment portfolios.
How can employers and retirement professionals help?
See T. Rowe Price’s thoughts on next steps:
Article Resources
Both the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS) are biennial studies conducted in even and odd years, respectively, by the Institute for Social Research (ISR) at the University of Michigan. Our sample followed a group of 1,306 households from 2005 to 2019 who were present in the 2005 CAMS, were between age 65 and 90, and have been surveyed in at least three consecutive waves of the CAMS. The most recent wave was released in August 2021, with 2019 data being the most recent available at the time of our analysis. Measurement or reporting error is a serious concern for studying volatility of spending, and we impose several restrictions on the sample to mitigate the effect of measurement error.
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