Are people really willing to adjust spending?

Retirement income plans with guardrails imply that when things change enough, for better or worse, people will adjust their behavior. The lower guardrail - the guardrail that says “we're running too hot now and it's time to trim back spending or make some other change to cool things down” - can be particularly important because changes in spending imply lifestyle changes.

So, the question is, would people really be willing to make downward adjustments in retirement if they had to? Research does suggest that people are more flexible in their spending than you might think. Here is a summary of some results of a 2021 survey of defined benefit plan participants, age 50-70, regarding their own perceptions of how much they would be willing to adjust spending in various categories.

These results say that, while 24% of respondents would not be willing to change food spending, 42% of people would be willing to reduce their spending on food by 24% or less. In general, 30-40% of people would be comfortable with that size change across all categories.

This willingness to adjust makes sense if we remember that not all retirement spending is “needs”. People also spend money on wants and wishes - discretionary and more flexible spending. This same research study showed that most commonly people saw about 70% of their spending as essential (this is the “mode”, or “modal response”; on average, 65% of spending was essential).

So, while the flexibility of any one individual might be higher or lower, this data suggests that flexibility is built into many people's view of the world and expectations about the future.