Boomers in their 50s expect to spend $578,000 over the course of their retirement on “activities” (above and beyond normal living expenses), according to a new survey from Sun Life Financial Inc. (U.S.), Wellesley, Mass. Those in their 60s expect to spend $611,000, and 70-somethings put the number at $662,000. (Read our story on this here )
Those numbers have the hint of spending spree about them. Advisors should point that out to boomer clients and use the discussion as a way to bring those clients back to Earth–and into the realm of realistic retirement planning.
The last number, about 70-year-old expectations, is least troublesome. After all, the survey was limited to people who have at least $250,000 in invested assets and who work with investment professionals on their investment decisions. Seventy-year-olds fitting that criteria are likely to a) have already experienced spending on “activities” in retirement and b) have the means and ability to project out their likely spending for their remaining years.
But the younger boomers are another story. They are in their 50s, a decade or so away from their retirement years. Many are still paying for college educations of children, paying off the mortgage, helping their ailing parents, juggling divorces and later stepfamily households, and struggling to stay afloat in today’s rough economic waters. Those with at least $250,000 in invested assets are certainly not paupers. But if that’s all they have now, along with their mortgage and other debts and expenses, they will be hard pressed to spend nearly $600,000 on “activities” once retired (unless, of course, they get a big inheritance or win a big lottery.)
Boomers who are in their 60s are certainly in a better position to judge their future spending. Hopefully they have paid off the mortgage and the college educations, weddings, and other major middle-age expenses. Hopefully, they will have settled down to managing money wisely, with an eye to their retirement future. Still, a review of how the 60-year-olds in the survey expect to spend their “activity” money raises more than a few doubts.
Here is what this age group–people with at least $250,000 in invested assets and who are working with an investment advisor, remember?–said they expect to spend in retirement:
o Domestic Travel $60,000
o International Travel $62,000
o Hobbies $15,000
o Charitable Donations $84,000
o Luxury Item (i.e. car) $59,000
o Home Improvements $69,000
o Second Home $245,000
o New Business $17,000
Total Expected Spending: $611,000
Now, to the problem: The allocations for hobbies and new business seem reasonable enough, but spending $245,000 on a second home? Really? Maybe $245,000 on a downsized principal residence in a retirement villa is reasonable. But it’s hard to imagine a large number of new retirees investing in second homes at the very time when they are stopping working and adjusting to living on a retirement income from existing assets.