Too many online shopping sprees. Frequent dinners at your favorite steak house. Pricey vacation getaways. And, of course, high inflation. Houston, we have a problem: Many retirees are spending way more than they expected.
Those bigger bills are busting their budgets and draining their nest eggs quicker than planned. In fact, nearly half (49 percent) of retirees said their overall spending is higher than they expected when they first retired, up from 36 percent in 2022, according to the 2023 Retirement Confidence Survey conducted by the Employee Benefit Research Institute. Nearly four of 10 retirees said they’re spending more than they planned on health care. Thirty-three percent cited housing, and 29 percent are shelling out more than expected on travel and entertainment, the EBRI survey found.
Why the out-of-control spending? Stephanie Roberts, a partner, VP, and wealth manager at Haase Family Advisors at Steward Partners, ticks off three common causes of overspending: “Emotional spending, or using spending to fill a void. Lifestyle creep. No plan.”
Big risks from overspending
Retirees who overspend risk making their retirement less secure. That’s especially true if their life expectancy extends farther into the future than they anticipate and if they don’t have a well-funded emergency fund. “If you spend recklessly in retirement, you punch a hole in your retirement savings bucket that you can never fill,” says Steve Parrish, adjunct professor and codirector of the Center for Retirement Income at The American College of Financial Services. “You can’t work your way out of it, and you probably can’t invest your way out of it, either.”
The fallout from overspending could mean outliving your nest egg, having to cut back on your retirement dreams, not being able to pay for emergencies like a sudden medical bill and racking up credit card debt you can’t afford. It could also cause you to have to go back to work to make ends meet.
There’s also a potential psychological fallout to frittering away your nest egg too quickly, says Robert Peterson, senior wealth advisor at Crescent Grove Advisors. “Having adequate savings provides a feeling of security,” says Peterson. “If you are constantly running up credit card debt and barely making debt payments, you are adding a huge amount of stress to your life and diminishing your long-term health as well.”
Often, overspending before retirement foreshadows an inability for retirees to stick to a budget once they stop working. “In my experience, it is very hard to get off the hedonistic treadmill, so the event of retiring is not likely to change a person’s behavior,” says Peterson.
It’s not just retirees with modest nest eggs who can be upended by overspending. It’s not unusual for high-income earners to suddenly get a rude awakening when they shift to a fixed income in retirement and can’t cover spending with their next paycheck. “High earners can find it challenging, as it demands adapting to a more mindful expense approach that may differ from their accustomed lifestyle,” says Yosef Ghebray, a certified financial planner for digital investment firm Betterment.