Retirement marketing focuses on two things that are poles apart: excitement and pain. Either you are having an exciting time playing golf, taking a cruise and drinking champagne—or someone is feeding you in the memory care unit. I know because the advertisements tell me so.
Real retirement is different. It is neither great excitement nor great pain. It is about simple, but under-rated, contentment. And that contentment has real financial value. Indeed, its financial value may be more important than any single investment decision you make.
Yes, I know that sounds a little crazy. But let me show you how the evidence fits together.
In the October issue of the Journal of Financial Planning, researchers Charlene M. Kalenkoski and Eakamon Oumtrakool explore time budget studies. They show the differences between how people who are still working and retired people spend their time. Some of those differences are obvious. Working is the second-highest consumer of time, after sleep, for people who still work. Work isn’t on the list for retirees.
Retirees spend more than twice as much time watching television and movies. They spend about four times as much time reading for pleasure. They give more time to eating and drinking. They spend twice as much time preparing meals and shopping for food. They go further afield for other shopping and they’ll drive farther to dine out. While workers tend to ignore lawn, garden and houseplant care, retirees devote themselves to it.
What does this tell us? Two things. First, when work disappears people become more “productive” in their homes. They become more attentive buyers, better shoppers. And they may eat better because they spend more time preparing food. This, some researchers have suggested, is why spending on food decreases for most people when they retire. If they are better shoppers, it may also explain other declines in spending.
These declines aren’t minor. The Employee Benefit Research Institute (EBRI) found that household spending declined as people aged. This happened at the top of the income pyramid and close to the bottom. Either way, spending declines as people age. Households close to the top reduced spending from $126,644 to $103,880. That's an 18 percent drop. Households close to the bottom reduced spending from $25,957 to $21,886. That's a 16 percent drop.
The first big implication here is that most financial planning sets the amount of income we need to replace at retirement too high. Conventional planning urges us to replace a percentage of our pre-retirement income. So we get pointed at a target that is too high, like 85 percent of pre-retirement income.
You can measure how big a deal this is by considering the reduction in spending for the median household. It falls by $9,526 from $43,580 to $34,054. To have $9,526 of after-tax income that household would need a whopping $280,176 more in retirement savings, using the 4 percent withdrawal rate convention.
If we aim toward retirement spending, more people may be able to retire at their true personal comfort level. This isn’t a new idea. Financial planner Ty Bernicke wrote about declining consumption and its implications long ago. He called it “reality retirement planning.” Since he wrote about it other studies have confirmed a consistent pattern of spending decline as we age. The EBRI research shows the same pattern for consumer spending studies from 2003, 2005, 2007, 2009 and 2011.
Second, most retirees aren’t filling their time with big-time excitement. As one reader told me recently, “I have a small plate. It’s well filled. And I’m happy with it.” This is important because excitement tends to be expensive. Down-home contentment is free.
Cassie Mogilner is an Assistant Professor of Marketing at the Wharton School. She researches happiness, time and money. In a 2011 paper, "The Shifting Meaning of Happiness,” she found that the sources of our happiness change over time. The young find their happiness in excitement. Older people find their happiness in contentment— enjoying small moments rather than big events.
We'll never see this notion advertised on television. We won't see it in glossy magazine ads, either. But learning what makes you feel happy and content qualifies as a major piece of our retirement planning.
Scott Burns is the retired Chief Investment Officer of AssetBuilder, the creator of Couch Potato investing, and a personal finance columnist with decades of experience.