Are younger retirees being advised to spend too conservatively?

In many cases, the answer is yes, says S. Katherine Roy, chief retirement strategist and head of individual retirement for J.P. Morgan Asset Management. Roy spoke on a panel with Bill E. Carter, president of Carter Financial Management, at the 8th Annual Inside Retirement conference in Dallas on Thursday.

Older retirees actually spend a lot less than younger ones, but that fact is often not reflected in financial planning tools, she said.

"It's been proven that if I use the wrong kind of spending assumptions, or overly conservative assumptions in people's plans, I'll be forecasting that they'll be spending incredible amounts of money later in retirement, and that probably is not going to be the case," she said.

Older people spend less on every category but two: health care and charitable giving, Roy noted.

J.P. Morgan has studied asset and income data anonymously of more than 5.4 million people who spent a significant portion of their estimated income through JPMorgan Chase accounts. The research showed that spending peaks when income peaks, and for most people that's when they are between the ages of 45 and 55. The percentage drop-off in spending as people age is even more pronounced for people with $2 million to $5 million in assets, possibly because they have more discretionary spending to cut back on, Roy said.

Households today headed by a 65-year-old with $1 million to $2 million in assets spend about $200,000 a year from all income sources, Roy said. Historical CPI-U, now about 3 percent, is often applied to reach the dollar amount, adjusted for inflation, needed in the future to maintain one's lifestyle. However, Roy said, CPI-U doesn't account for the reduced spending in many categories by older people. J.P. Morgan's research overlays those spending behavior changes to arrive at what it believes is a more accurate overall rate of economic inflation -- 2.25 percent -- for older people with $1 million to $2 million in assets.

The CPI-U rate results in spending forecasts about one-third higher for a 90-year-old, Roy noted. However, because health-care spending does rise as a person ages, J.P. Morgan recommends that a separate line item be included in financial plans for it. The company currently estimates that a 65-year-old will spend a total of $5,140 a year on all health care, and that figure is estimated to grow at 6.5 percent a year, she said. The inflation rate for other lifestyle spending should be between 1.5 percent and 2 percent, she said.

Roy was quick to point out that the overall numbers J.P. Morgan arrived at are averages. The firm did look at groups of people with similar spending patterns so their habits could be reflected in planning.

About 39 percent of the people studied were "foodies," who liked spending more on food, eating out and big-box store purchases. About 29 percent were identified as "homebodies," people spending more on mortgages, renovations, property taxes and other home costs. The only group to spend more on travel were the "globe-trotters," people who traveled a lot throughout their lives and traveled even more between the ages of 80 and 85. Although globe-trotters were only 5 percent of those studied, Roy suggested that advisors add a separate line for travel in financial plans for these people. Another 4 percent were "health-care spenders" and 24 percent were "snowflakes," who were all different and difficult to profile.