Aug 22, 2013

    Plan to splurge on 1st yr of retirement

    YOU can play with retirement-planning calculators, but it's unlikely any of them will factor in expenses like a US$1,000 (S$1,280) custom-made satin-and-rhinestone stage outfit.

    That's the first thing that Ms Aurora Flores, 60, bought when she retired last year after 20 years in public relations. The New Yorker kicked her world-music band into high gear, performing internationally and spending most of her spare cash on items like travelling between shows and that sparkly stage suit.

    It paid off. Ms Flores had fun and actually made money taking her Latin-music band, Zon del Barrio, on the road.

    But the suit is a symbol representing not only new adventures that await those who leave their day jobs, but also the expenses of that first year of retirement, which are often higher than expected and unpredictable.

    Many people lowball the figure for the first year, when new retirees outspend their expectations with celebratory trips and hobby supplies. Spending tends to slow down later, as retirees age, settle into routines and travel less.

    Ms Flores estimated she spent about US$112,000 in her first year of retirement. That's 75 per cent of the US$150,000 that was her last annual salary, a typical first-year percentage, said experts.

    But, like in the case of Ms Flores, not all the money goes to utility bills and blood-pressure medication. Much of it is an upfront investment in lifestyle change.

    People between the ages of 65 and 74 spend 33 per cent of their budget on shelter; 12 per cent on health care; 13 per cent on food; 5 per cent on entertainment and 17 per cent on transportation, including leisure travel, according to the United States Bureau of Labor Statistics.

    When asked how they spent their money during that first year, retirees gave a breadth of answers.

    "If you've worked for 40 years, as my wife and I have, you think: Well, it's time to have a little fun," said Mr Stan Hinden, a former Washington Post columnist and the author of How To Retire Happy.

    He and his wife took a one-week US$15,000 cruise to the Caribbean when he retired.

    Mr Hinden said: "I had not included the cost of travel or fun in my budget. It took us about two years to figure things out, and we really had to slow down our spending."

    He told pre-retirees to plan on spending more than 80 per cent of their last year's income in their first year of retirement, so that they are ready for both the fun and unexpected medical costs.

    Half of the respondents in a recent Employee Benefit Research Institute survey said they spent more in early retirement than they did before they stopped working.

    Mr Richard Brown, 61, who retired from a job in pharmaceutical sales last year, said: "When you retire with a great benefits package, you think you're the king of the world for the first year."