Spending can decrease in retirement but only if...

Spending can decrease in retirement

First, the good news: Spending in retirement decreases substantially, with spending falling across every category in retirement, according to the J.P. Morgan study.

For a couple whose ages are between 45 and 54, average spending per year was near $84,000, but for a couple in their mid-70s, their average annual spending was around $53,000. This is about a 34% decrease in spending. The experts tell us that we should save and try to replace 70% of our working income as a family. However, the research shows that we may only need to replace 66% of our working income as a couple.

Housing costs are a big chunk of this spending in all age groups, but they peak during your 40s and then start declining after. Transportation, entertainment, food, beverage, and travel expenses also decline from age 40 to age 70. Naturally, healthcare costs increase as you age, and charitable donations pick up later in life as well. The biggest takeaway is that on average, you won't spend as much in retirement as you do in your working years unless you are supporting your children.

We, as parents, have long tried to set up our children for success, but today that assistance is costing ever more, and lasting far longer. About 15% of 25- to 35-year-olds were living at home in 2016, based on a Pew Research report. That’s five percentage points higher than the share of Generation Xers living at home when they were the same age, and almost double the share of today’s older retirees who were in the same situation years ago.

How Parents Support Adult Children

Our help often starts small, covering expenses such as cellphone bills, car payments, groceries, or health insurance. But this temporary assistance can quickly turn permanent and pricey, financing rent and down payments, grandchildren’s college educations, and support for offspring going through a divorce or battling drug addiction.

Nearly 80% of parents give some financial support to their adult children—to the tune of $500 billion a year, according to estimates by consulting firm Age Wave. That’s twice what parents put into retirement accounts, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave. Almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs.

Ten years of a bull market and growing comfort with debt have made this largess easier to rationalize. But incurring additional costs just before or just into retirement can be problematic. While most people are well aware of the threat posed by a sharp market downturn just as they begin to tap their savings, they’re less attuned to how helping their children can pose a similar danger and imperil decades of savings.

Cost of Parental Love

Here’s what parents will sacrifice to help adult children

50% Pull money from savings

43% Live less comfortably

26% Take on debt

25% Tap nest egg

19% Retire later

14% Refinance home

8% Come out of retirement

Source: Bank of America Merrill Lynch

Financial support isn’t just bad for retirees; it can hurt children as well. Paying for vacations, Uber rides, car loans, and rent can prevent adult children from becoming financially independent, ultimately compromising their financial well-being. Some parents, wanting to be near their grandchildren, swoop in with a down payment for a home in their affluent neighbourhood.

When an adult child is battling addiction, mental illness, or a medical condition, tough love is harder to follow. But sometimes footing the bill can create more damage, cutting off the adult child from the community- or state-based services and—in instances of addiction—adding to the problem.

So, now what?

For those who are intent on helping their adult offspring, run the numbers and bring the children into the conversation so they can see what their parents can afford, reducing the guilt some parents feel for saying no.

In sum, giving to children requires good communication and firm boundaries. But striking the right balance can help parents find the feeling that’s so elusive: peace of mind, for their children and themselves so the parents can spend less in retirement while still enjoying a good lifestyle.

Do you believe in Magic?

According to Adherents, there are over 4,000 faiths and spiritual movements in the world today. So, what is religion? Some would say it is a type of magic. While religion is hard to define, one standard model of religion, defines it as a "[…] system of symbols which acts to establish powerful, pervasive, and long-lasting moods and motivations in people by formulating conceptions of a general order of existence and giving these conceptions an aura of factuality that seem uniquely realistic."

Religions have stories, figures, legends and divine tales that are intended to give purpose to life or to reveal the origin of life or the world or our existence. Religions tend to assume virtue, values, spiritual laws, or a chosen lifestyle created from their ideas about the cosmos and individual nature. 

The word religion is sometimes used interchangeably with "faith" or "belief system", but religion differs from private belief because it has a public aspect. Most religions teach their faithful organized practices and teach a belief in the value of their particular hierarchies. The religion defines who and what constitutes membership. The leaders set up a routine for the followers including regular meetings or services for the purposes of worship of a deity or for prayer. The leadership also identify holy places (either natural or architectural) or religious texts for the followers. 

All religions have language that is sacred. Religious practice may also include sermons, the commemoration of the activities of a god or gods, sacrifices, festivals, feasts, trance, rituals, rites, ceremonies, worship, initiations, funerals, marriages, meditation, invocation, mediumship, music, art, dance, public service or other aspects of human culture. Spiritual beliefs have also been used to explain out-of-body experiences, near-death experiences and reincarnation, along with many other paranormal and otherworldly experiences.

One theory of religion, social constructionism, says that religion is a modern concept that suggests all spiritual practice and worship follows a similar model. Social constructivism is a theory of knowledge according to which human development is socially situated and all knowledge is constructed through interaction with others. 

All social constructs impact us in ways they affect our behaviour: money causes us to move material goods all around the world, war causes us to kill and destroy, justice can create peaceful communities (or violent ones, when absent), etc. Religion clearly also has an impact: we construct temples, write books, come together for prayer, contemplation, and we persecute those who believe differently than we believe.

Some have theorized that it doesn’t matter what faith you believe in as long as you believe in something that gives you meaning, guidance and peace. But others believe that believing in something that isn’t true is a definition of insanity.


Believing in religion is the same as believing in magic. It can be fun and harmless, but it can also be counterproductive if for no other reason than it’s a waste of time. It keeps you busy while ignoring real-world issues that have consequences. Your life and everyone else’s would be improved by focusing on and solving real problems.

Do you see?

You can choose to go, do, and be and in the end you'll exclaim, shocked and bewildered, that because of all the synchronicities of your life, all the "clicks" and "coincidences," and the many happy "accidents," your bounty and good fortune must have been your destiny.

Or, you might choose to wait for a miracle, a saviour, or divine intervention, and in the end you'll exclaim, shocked and bewildered, that because of all the synchronicities of your life, all the missed chances and disappointments, and the many unhappy accidents, your lack and misfortune must have been your destiny. 

Do you see what the difference is? 

What is your magic number

In Canada, retirees have an important foundation through the Canada Pension Plan (CPP) and Old Age Security (OAS) on which to start their retirement savings programs.

Still, CPP and OAS won’t pay for everything and it would be a mistake to assume that Canada’s national pension plan will cover all your costs.

How much you really need to retire depends on a lot of things: the extent to which you plan to travel, whether you’re planning upgrades to make your house more comfortable, costs for prescription medications, non-covered medical expenses, and so much more.

Financial planners and pension experts frequently use the term ‘Magic Number’, based on a percentage of your current income, to come up with an idea of how much you should expect to spend each year after you retire.

Many experts cite a need for retirees to have 70 percent of their working income in order to retire comfortably. So, if you made $50,000 a year (The average wage in Canada in 2018) when you were working, the math says you’ll need $35,000 a year once you retire.

These so-called Magic Numbers also come with several assumptions on the planner’s part: you have paid off the mortgage on your principal residence; your children are through university, have moved out and you are no longer supporting them financially; you aren’t making support payments to a former spouse or common-law partner; you are either single, or if you are married are not planning to get divorced; you are in generally good health and are taking sufficient care of yourself to ensure you’ll stay that way for 15 to 20 years and you aren’t anticipating any major expenses, like having to buy a new vehicle or a cottage.

Choose your multiplier

Once you determine how much you’ll actually need each year, multiply that number by the number of years you expect to live in retirement.

So, if you expect to be retired for 20 years (which brings you to age 85 if you retire at 65--85 is five years longer than the average life expectancy for men and one year longer than the average life expectancy for women in Canada in 2018), then using our simple example, multiply $35,000 x 20 and the math will tell you that you need $700,000 saved for retirement.

Sounds hard, and it is. But here’s some good news: if you contribute enough to CPP to collect $10,000 annually, then you only have to save enough to have an extra $25,000 for each year in retirement.

Suddenly, the math looks like this: $25,000 x 20 = $500,000 in needed savings. And that’s before you factor in OAS, which for most Canadians comes in around $7,040 a year. So once you factor in OAS the amount is you need to save for an extra $17,960 a year. The math now looks like this.
$17,630 X 20 = $359,200 is what you need to save for your retirement.  To achieve that goal, if you invest and earn the average rate of return of 5.89% a year then from you need to invest

At age 25  $ 185.69 a month
At age 35  $ 365.40 a month
At age 40  $ 527.70 a month
At age 45  $ 788.65 a month

As you get older you have to invest more to make the amount of money needed, so start investing earlier or start now and many Canadians are now opting to work a little longer – to 67 and 70, which can shave a few years off your savings needs so you will need less money.

And, keep in mind, these estimates assume that all the cash is in place on the day you retire. If you leave a portion of your savings invested and they earn an average 5 to 7 percent annual return, your nest egg will continue to grow during retirement.

For anyone who hasn’t started saving, those numbers should be sound motivation to start exploring the various options to line up your finances for a comfortable retirement.

A qualified financial advisor can provide specific insights about how much you need to save, and how to get that process started.