Spending in Retirement: The One-Two Million Asset Group

Roughly one in 20 households has over $1 million in investable assets, not including real estate. This group is not typical of the average American, but rather among the most privileged. Theoretically, they could differ from the broad range of households that I addressed in my last article, “Preparing Your Savings for the Stages of Retirement.”

But, research on spending in the one-two million asset group doesn’t differ substantially from those with fewer assets per a new study. The wealthy segment also exhibited a decrease in spending during retirement.

In order to make this determination and others, The JPMorgan Chase research group examined data from 613,000 Chase households with one-two million in assets, not including real estate. The households were led by someone 55 years or older. They divided the families into five retirement spending categories. The idea was to see how behavioral patterns influenced monetary outlays. The results are a snapshot in time rather than a longitudinal study.

• Foodies (39%) — spend more on food and beverages
• Homebodies (29%) — spend more on mortgages, renovations, property taxes, and furnishings
• Unclassified (24%) — difficult to categorize, unique
• Globetrotters (5%) — spend more on travel
• Health care customers (4%) — spend more on health care

The research group then attempted to make loose projections for each segment related to monies needed during retirement. Because there are so many unknown variables regarding forecasts, the results are helpful, I would say, but not profound.

One group caught my eye, however — the globetrotters. They were the smallest in size, only 5% of all retirees examined. Still, this segment is likely to be readers of this column and one that can identify itself easily.

Globetrotters had the resources to travel and, on average, spent 25% of their income in this pursuit. They also had the highest overall expenditures.

A surprising finding was that age did not seem to preclude the propensity to travel. There were as many over 75 years of age in this pursuit as under. Additionally, the money spent for tourist activities was the highest for the 75 plus group. Arguably, this might be because more money was required for assistance for the older traveler or excess monies were available and the decision maker decided to use them in this way.

From the research group’s point of view, globetrotters were a relatively happy cluster. They cited research that showed that experiences deliver greater sustained happiness than material objects.

More information on the other categories in the one-two million asset group, the foodies, homebodies, unclassified, and health care spenders, can be found in the J.P. Morgan report. The overall implications for retirement investments from the study were:

1. A financial plan can be better tailored to an individual if her spending profile is identified.

2. Then, expenses can more accurately be projected to fit individual need.

3. Health care costs should be a separate item in the plan (for obvious reasons).

4. This more complete approach will contribute to a retiree’s peace of mind.

Lastly, inflation always must be considered — which is why a part of every retiree portfolio should allocate some percentage to growth stocks. In the words of the authors of the J.P. Morgan report, Katherine Roy and Sharon Carson, “If inflation is a concern, as it is particularly for health care spenders, globetrotters and some homebodies, then there is a basic need for growth in the portfolio, even if income is important as well. If a retiree is likely to decrease spending over time, as foodies tend to do, income generation may be the chief concern. (Still, foodies shouldn’t dismiss inflation concerns completely given that health care expenses tend to increase as we age).”