Spending can decrease in retirement but only if....

First, the good news: Spending in retirement decreases substantially, with spending falling across every category in retirement, according to the J.P. Morgan study.

For a couple whose ages are between 45 and 54, average spending per year was near $84,000, but for a couple in their mid-70s, their average annual spending was around $53,000. This is about a 34% decrease in spending. The experts tell us that we should save and try to replace 70% of our working income as a family. However, the research shows that we may only need to replace 66% of our working income as a couple.

Housing costs are a big chunk of this spending in all age groups, but they peak during your 40s and then start declining after. Transportation, entertainment, food, beverage, and travel expenses also decline from age 40 to age 70. Naturally, healthcare costs increase as you age, and charitable donations pick up later in life as well. The biggest takeaway is that on average, you won't spend as much in retirement as you do in your working years unless you are supporting your children.

Now the bad news. We, as parents, have long tried to set up our children for success, but today that assistance is costing ever more, and lasting far longer. About 15% of 25- to 35-year-olds were living at home in 2016, based on a Pew Research report. That’s five percentage points higher than the share of Generation Xers living at home when they were the same age, and almost double the share of today’s older retirees who were in the same situation years ago.

How Parents Support Adult Children

Our help often starts small, covering expenses such as cellphone bills, car payments, groceries, or health insurance. But this temporary assistance can quickly turn permanent and pricey, financing rent and down payments, grandchildren’s college educations, and support for offspring going through a divorce or battling drug addiction.

Nearly 80% of parents give some financial support to their adult children—to the tune of $500 billion a year, according to estimates by consulting firm Age Wave. That’s twice what parents put into retirement accounts, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave. Almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs.

Ten years of a bull market and growing comfort with debt have made this largess easier to rationalize. But incurring additional costs just before or just into retirement can be problematic. While most people are well aware of the threat posed by a sharp market downturn just as they begin to tap their savings, they’re less attuned to how helping their children can pose a similar danger and imperil decades of savings.

Cost of Parental Love

Here’s what parents will sacrifice to help adult children

50% Pull money from savings

43% Live less comfortably

26% Take on debt

25% Tap nest egg

19% Retire later

14% Refinance home

8% Come out of retirement

Source: Bank of America Merrill Lynch

Financial support isn’t just bad for retirees; it can hurt children as well. Paying for vacations, Uber rides, car loans, and rent can prevent adult children from becoming financially independent, ultimately compromising their financial well-being. Some parents, wanting to be near their grandchildren, swoop in with a down payment for a home in their affluent neighbourhood.

When an adult child is battling addiction, mental illness, or a medical condition, tough love is harder to follow. But sometimes footing the bill can create more damage, cutting off the adult child from the community- or state-based services and—in instances of addiction—adding to the problem.

So, now what?

For those who are intent on helping their adult offspring, run the numbers and bring the children into the conversation so they can see what their parents can afford, reducing the guilt some parents feel for saying no.

In sum, giving to children requires good communication and firm boundaries. But striking the right balance can help parents find the feeling that’s so elusive: peace of mind, for their children and themselves so the parents can spend less in retirement while still enjoying a good lifestyle.