One of the biggest fears I hear from clients is running out of money in retirement. It’s why many people over-save, work longer than necessary, and delay enjoying life while they’re still healthy enough to do so. But here’s something surprising from the research: you probably won’t maintain constant inflation-adjusted spending throughout retirement. In fact, most retirees don’t.
A 2014 study discovered a “retirement spending smile.” Instead of spending staying flat or increasing with inflation, real spending follows a curved pattern that resembles a smile. Here’s what often happens: In early retirement (the “go-go” years), spending is highest as retirees travel, eat out frequently, and pursue new hobbies. Then spending decreases, often by 1-2% per year, during the middle retirement years (the “slow-go” years) as activity naturally declines. Finally, spending levels off or ticks up slightly in late retirement (the “no-go” years) when healthcare costs rise, but even this uptick doesn’t fully offset the earlier decreases.
JP Morgan confirmed this pattern using their own client data of households with $1-2 million in assets. They found real spending decreased about 1% annually through the first 20 years of retirement.
The implications are significant. If you’re planning for constant inflation-adjusted spending, you might be targeting 15-20% more savings than you actually need. That could mean working years longer than necessary or leaving significant wealth unspent at death.
This doesn’t mean you should under-save. Rather, it means being realistic about spending patterns can help you make better decisions about when to retire and how much you can safely spend in those critical early retirement years when you’re healthiest.
The real risk isn’t running out of money; it’s missing out on life experiences during the years when you can most enjoy them. The research suggests you have more flexibility than traditional retirement models would indicate.
Want to understand what your personalized retirement spending pattern might look like? Schedule a complimentary review to see if you’re on track—or if you might be over-saving.