Endless Summer, Debunked

splashing out in retirement

In April of this year, after 30+ years of diligent service as breadwinners and parents, my mom and stepdad retired with a capital R.

They did not hesitate at the precipice of retirement. They did not shuffle back into the well-worn patterns they’d established over the past few decades. They had a plan: Sell the house. Buy another house in a lakeside community. And a golf cart.

Retirement looks amazing. My mom’s reports from Camp 401k are a litany of leisure: boating, barbecues, some enigmatic-sounding game called pickle ball, naps. As my parents collect hobbies, they have begun acquiring the requisite accessories of comfortable middle class living with the gusto of a teenager blowing her first paycheck.

Watching my parents purchase their dream has been exhilarating, enviable, and alarming. I am a 29-year-old working in tech and academia (not an oxymoron), just beginning to get my financial and professional footing. I feel the hot, bitter breath of ten years of student loans and credit card debt breathing down my neck. I am re-wiring myself into responsibility, one budgeting app at a time.

And then I see my parents — who have always been careful with their money, but who only five years ago were struggling to refinance their home — in their first blush of pension-fueled optimism. There is no doubt in my mind that they deserve to indulge after raising five kids through a recession. But I also worry about their financial abandon the way they must have once lost sleep over my sometimes abusive relationship with money.

My folks’ retirement habits are not unique in this respect. One study found that 28% of the retired households were “spending more than 120% percent of what they did in the years just before retirement.” Far from settling down, many new retirees are looking to shake things up, as is reflected in a pattern called the “retirement spending smile.” This un-ironically named graph shows clear upticks in spending at the beginning and end of retirement.

While I’m in no position to pass judgement (I recently spend $92 on yarn), it’s hard not to worry about the lifestyle creep that my parents and other retirees are facing. We get an earful about the necessity of saving for retirement, but there is comparatively little attention given to what to do once (and if) you get there. Obviously you celebrate. But when does that summer end?

To even get to retirement in the first place is a small miracle. Let’s assume that your socio-economic circumstances are such that you can consider saving any percentage of your paycheck. The AARP recommends that you should aim to set aside roughly $1.18 million dollars by the time you’re 62 if you plan on living comfortably for 30 more years. Since 62% of American adults aspire to live anywhere from 79 to 100 years old, there is then the matter of managing that money over the following decades.

The trouble is, many people are uncertain how to budget on a fixed income. In fact, “77% of Americans older than 40 do not know how much of their retirement savings they can safely spend each year without running the risk of outliving their assets. In 2006, 90% of Americans did not know a safe withdrawal rate.”

What is a safe withdrawal rate, you’re wondering? The rule of thumb has long been to restrict your yearly withdrawals from your retirement savings to under 4% (although there is much griping within the financial services industry about this one-size-fits-all approach). That means that with $1.18 million saved and invested, you could expect to safely cash out $47,200 a year for roughly 30 years. That amount is nothing to sneeze at, but once you factor in cost of living, healthcare, carried debts, not to mention pontoon boats, $59k begins to feel a bit thin. It makes sense, then, that only 1 in 5 Millennials feel confident about their retirement savings, and many have some pretty unrealistic hopes about how they will close the gap before retirement: “Millennials expect to work for only 15 years and save $445,687 for retirement, and they anticipate receiving an average of $1.06 million from an inheritance — twice as much income as from their paychecks.”

Keep on dreaming, guys.

While numbers can be disheartening, there is power in them, too. If you have numbers, you can plan ahead. I am an inveterate planner, so plugging hypothetical digits into a retirement withdrawal calculator brings me momentary solace. Like exposure therapy, the more we can confront ourselves with the numbers, the more we can take control.

Then again, working with hypothetical sums can feel a bit like cold comfort. Anticipating what would happen to my finances in 30 years seemed impossible, if not a bit unproductive. Better to apply these calculations to those near and dear to me who were actually living in retirement. Maybe if I invested this information with my parents, I could actually see a positive impact in their lives decades before I could begin tapping into my 401k and making my own mistakes.

When I confronted my mom with my newfound knowledge, she rushed to reassure me that they had worked with a financial advisor and knew how much they could spend over the next 15 years. Still, I recently found myself on the phone trying to talk her down from buying a second-hand pontoon boat. I pointed out that they’d only just purchased a pair of kayaks a month before, and the aforementioned golf cart before that.

My mom, unfazed, chirped, “Isn’t it funny how our roles have reversed now?”

This article is part of our ‘Summer Series’ collection. Read more stories here.

Alana is an archivist-turned-content strategist living in Oakland, CA. She’ll most likely blow her 401k on trips to various island nations.

Support The Billfold

The Billfold continues to exist thanks to support from our readers. Help us continue to do our work by making a monthly pledge on Patreon or a one-time-only contribution through PayPal.