Many people assume retirement spending gradually declines year after year. Research into retiree spending patterns, however, suggests a different story.
Economists studying household spending have found that retirement expenses often form a curve known as the retirement spending smile. Spending begins relatively high in early retirement, declines during the middle years, and rises again later in life. Figures 1 and 2 help explain the retirement spending smile concept.
This reality is at odds with the mistaken belief that retirement spending will be a flat-line horizon.
Understanding the retirement spending smile has consequences for budgeting and financial asset allocation.
Figure 1: Cash Flow of the Retirement Spending Smile — spending is higher in early retirement, dips in the middle years, and rises again in late retirement.
| Age | Spending Pattern | Typical Drivers |
| 60–70 | Higher spending | Travel, hobbies, home improvements |
| 70–80 | Lower spending | Slower lifestyle, fewer large purchases |
| 80+ | Rising again | Healthcare, assistance, mobility needs |
David Blanchett’s academic essay. Estimating the True Cost of Retirement was published over ten years ago by the Society of Actuaries. An easy-to-read overview of the research along with other interesting articles can be found online at The Good Life Journey.
The first phase of retirement is often the most active. After leaving federal service, retirees finally have the time to travel, pursue hobbies, and tackle projects that were postponed during their careers. Some invest in home renovations or take trips they had long anticipated. As a result, spending in the early retirement years may remain close to pre-retirement levels.
As retirees move into their seventies, spending frequently begins to decline. Travel becomes less frequent, large purchases become less common, and day-to-day life often becomes more predictable. Economists sometimes refer to this period as the “slow-go” phase of retirement.
Later in life, however, expenses often rise again. The increase is rarely the result of discretionary spending. Instead, healthcare services, prescription drugs, and support needs gradually become a larger share of household expenses.
Understanding this pattern can help federal employees and retirees better plan their income from the Federal Employees Retirement System (FERS), Social Security, and the Thrift Savings Plan (TSP).
Active Retirement Years or the Go-Go Years (60–70)
The first decade of retirement is often the most active period.
Retirees finally have the time to do things they postponed during their careers. Spending often increases temporarily due to the following:
- travel and vacations
- hobbies and recreation
- helping children or grandchildren
- home renovations
- new vehicles or major purchases
Despite the increased spending, retirees are typically still healthy and independent, which keeps healthcare costs relatively moderate.
This period can produce higher spending despite the transition to retirement income.
The Quiet Years or the Slow-Go Years (70–80)
During the middle phase of retirement, spending often declines naturally.
Many retirees begin to travel less frequently and shift toward quieter activities. Major purchases become less common, and homes may already have been updated earlier in retirement.
Common characteristics of this phase include:
- fewer large discretionary purchases
- reduced travel spending
- more predictable monthly expenses
This phase often produces the lowest total spending in retirement.
The Late Retirement Years or the No-Go Years (80+)
Later in life, spending tends to rise again.
This increase is rarely driven by discretionary purchases. Instead, it often reflects the growing costs of maintaining health and independence.
Typical drivers include the following:
- healthcare costs
- prescription drugs
- home care services
- transportation assistance
- assisted living or long-term care
A Simple Example
Consider a hypothetical retired couple with the following spending pattern:
| Age | Annual Spending |
| 65 | $85,000 |
| 70 | $80,000 |
| 75 | $72,000 |
| 80 | $75,000 |
| 85 | $95,000 |
The dip in the middle years and then the later rise creates the spending smile.
Why This Matters for Retirement Planning
Many retirement models assume spending declines slowly each year. The spending smile suggests a different approach.
Planning for these phases helps retirees avoid two common mistakes:
- Spending too cautiously in the early years
- Underestimating late-life healthcare costs
Understanding the spending smile encourages retirees to understand the reality of cash flows.
Additional research on retirement spending patterns can be found through organizations such as the Employee Benefit Research Institute and the Center for Retirement Research at Boston College.
Next in this series: Why housing costs usually rise later in retirement.
Articles in This Series
Note: These links will be updated as the series is published on FedSmith
- Article 1: The Hidden Costs of Retirement: A New Series for Federal Employees
- Article 2: The Retirement Spending Smile: Why Expenses Fall—and Then Rise Again
- Article 3: The Retirement Housing Trap: Why Home Costs Often Rise Later in Life
- Article 4: How to Estimate the True Cost of Your Home in Retirement
- Article 5: Owning a Home Isn’t the Only Option: How Federal Retirees Can Plan for Renting
- Article 6: When Healthcare Becomes Your Largest Retirement Expense
- Article 7: Downsizing Math: When Moving Actually Saves Money
- Article 8: Why Long-Term Care Can Disrupt Retirement Plans
- Article 9: How Federal Retirees Should Plan for the Long-Term Care Insurance “Elimination Period Gap”
- Article 10: The Non-Medical Expense That Drives Long-Term Care Costs
- Article 11: No House, No Problem: Funding Long-Term Care with Financial Assets Alone
- Article 12: Self-Funding Long-Term Care Without Real Estate: You Need a Ladder
