Should partially retired households brace for an awkward spending phase?

New research by JPMorgan sheds fresh light on spending patterns of partially retired households, revealing significant challenges and differences from their fully retired counterparts.

The report, which analyzed data from over 280,000 Chase households, defines partially retired households as those deriving at least 20 percent of their income from retirement sources while still earning less than 95 percent of their pre-retirement income from labor.

Counting individuals working in retirement and spouses who don’t retire at the same time, around 53 percent of households fall into that category, according to the research by JPMorgan Asset Management.

The report indicates that partially retired households tend to increase their spending in the early stages of retirement. This behavior is particularly pronounced among households with pre-retirement incomes ranging from $50,000 to $90,000.

According to the findings, “partially retired households tend to spend more in the years preceding retirement and continue to spend more post-retirement than their fully retired peers.”

While 59 percent of fully retired households transition from work to retirement between the ages of sixty and sixty-four, only 49 percent of partially retired households begin drawing down their retirement savings during that phase.

The data also revealed a spending surge among partially retired households, primarily driven by costs from health care, apparel, and food and beverages. That spike in spending is more apparent among households with pre-retirement income below $150,000.

According to the report, six in 10 households overall go through some form of spending volatility at the beginning of retirement. However, partially retired households include more “upshifters,” defined as those where spending increases by at least 20 percent in a year.

The report also found partially retired households have higher levels of credit card debt and lower cash balances compared to fully retired peers.

Coupled with the early surge in retirement spending, the findings point to a potential risk of “inadequate retirement savings and highlighting a need for earlier planning assistance” among partially retired households.