Your Spending in Retirement Will Look Like a Smile, Not a Straight Line
Most retirement plans assume you will spend the same amount every year. Research shows that is not how retirement actually works.
When most people plan for retirement income, they picture spending the same amount every year from 65 until the end of their life. Maybe they adjust for inflation. Maybe they do not. But the basic assumption is that the number stays roughly flat across a 25 or 30 year retirement.
Research says that is not how retirement actually plays out. And understanding the real pattern of retirement spending could change how you plan for it, including how much you allow yourself to enjoy in your early years.
What the Research Actually Shows
Financial researcher David Blanchett analyzed household spending data tracking how real, inflation adjusted spending changes across retirement. What he found is that retirement spending does not move in a straight line. It follows a shape that researchers now call the retirement spending smile.
Spending tends to be higher in the early years of retirement, dips through the middle years, and then rises again toward the end of life. When you graph it out, the pattern looks like the curve of a smile. And it has significant implications for how you should think about structuring your retirement income.
The Three Phases of Retirement Spending
The active years (roughly 65 to 75)
Early retirement tends to be the most expensive phase and for good reason. You are healthy, energetic, and finally have the time to do everything you put off during your working years. Travel, hobbies, family time, experiences. Spending in this phase tends to run higher than people expect because the desire to live actively is at its peak.
The quieter years (roughly 75 to 85)
As people move through their 70s and into their early 80s, activity naturally slows. Travel becomes less frequent. Discretionary spending dips. Blanchett's research found that a retiree who started retirement spending $100,000 per year can expect real spending to fall to around $74,000 by age 84. That is a nearly 26% drop in real purchasing power needs, driven not by financial hardship but simply by a quieter lifestyle.
The healthcare years (roughly 85 and beyond)
In the later years, discretionary spending may be falling but healthcare costs are rising. Medical expenses, prescription costs, potential long term care needs, and assistance with daily activities all push spending back up. The smile completes itself as these costs eventually offset the lifestyle spending that dropped in the middle phase.
What This Means for Your Retirement Income Plan
The traditional assumption of flat, inflation adjusted spending across 30 years leads to two planning problems simultaneously. In early retirement, it may cause people to spend less than they can actually afford because the plan is calibrated for a worst case straight line that never materializes. In late retirement, it may underprepare for the healthcare cost spike because the model assumed spending was already at its peak the whole time.
When retirement income plans are built around the actual spending pattern rather than the flat line assumption, they tend to support a higher initial withdrawal rate. You can spend more in the active early years because the model accounts for the natural dip that follows. The math works in your favor when the plan reflects reality rather than a simplified assumption.
The practical implication most people miss
If you retire at 65 in good health and plan to spend the same amount at 80 as you do at 66, your retirement income plan may be holding you back unnecessarily in the years when you have the most ability to enjoy it. The goal is not to maximize your ending balance at the expense of your 60s and 70s. It is to align your spending with how you will actually live, which means more in the early years and a thoughtful plan for the healthcare costs that come later.
The Planning Conversation Worth Having
A retirement income plan built around the spending smile asks different questions than a plan built around a flat withdrawal rate. It asks when you want to travel and how much. It asks what your healthcare situation looks like and what contingencies are in place for late life costs. It asks what you want your 70s to look like versus your 80s. Those answers shape a plan that actually fits your life rather than a generic model of what retirement is supposed to cost.
Alfred Edmonds is an Investment Advisor Representative at Cetera Investors in San Jose, CA. He specializes in retirement income planning for California educators, pre-retirees, and high net worth individuals. This content is for informational and educational purposes only and does not constitute financial, tax, or legal advice. References to the retirement spending smile are based on research by David Blanchett published in the Journal of Financial Planning. Please consult a qualified financial professional regarding your specific retirement income strategy. A diversified portfolio does not assure a profit or protect against loss in a declining market.