Why Today’s Retirees Are Spending More Than Ever (And How You Can Too) | The Limitless Retirement Podcast

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In this Video Danny Gudorf explores the concept of the retirement spending smile, a pattern that reveals how retirees' spending habits change over time. It challenges the conventional wisdom of a steady inflation-adjusted income stream, suggesting that retirees may need significantly less income than previously thought. The discussion includes a detailed breakdown of the three phases of retirement spending: the go-go years, the slow-go years, and the no-go years, and illustrates how these phases impact financial planning through a real-life example of a retiree named Bill.

The Retirement Spending Smile: Why You May Need Less Money Than You Think

What if your retirement plan is telling you to save more money than you actually need—and potentially delaying the retirement you've worked so hard to enjoy?

Most retirement calculators assume you'll need a steady income that increases with inflation throughout retirement.

But research suggests that isn't necessarily how people spend their money.

In fact, understanding a concept called the Retirement Spending Smile could significantly change how you approach retirement planning.

Research by David Blanchett, published in Estimating the True Cost of Retirement, suggests that accounting for changing spending patterns could reduce estimated retirement savings needs by as much as 20% under certain assumptions.

That's a potentially meaningful difference.

And it raises an important question: Are you planning for the retirement you'll actually experience, or one based on assumptions that don't reflect your lifestyle?

Let's explore what the research reveals and how it could affect your retirement strategy.

What Is the Retirement Spending Smile?

Traditional retirement planning often assumes your spending remains relatively consistent throughout retirement, increasing each year to account for inflation.

But real life rarely follows such a predictable path.

The Retirement Spending Smile describes how spending tends to change throughout retirement.

Rather than following a straight line, spending often starts higher, gradually declines, and may increase again as healthcare needs become more significant.

This creates a pattern resembling a smile.

The concept is closely associated with research by David Blanchett of Morningstar, while financial planner Michael Stein helped popularize three memorable descriptions of retirement's spending phases:

  • Go-Go Years: A period of greater activity, travel, hobbies, and discretionary spending.

  • Slow-Go Years: A period when lifestyle spending often gradually decreases.

  • No-Go Years: A period when discretionary spending may decline further, while healthcare and care-related expenses can increase.

These phases aren't rigid rules. Your spending depends on your health, preferences, family circumstances, and financial resources.

However, understanding this general pattern can help you develop a retirement income strategy that better reflects your actual needs.

1. The Go-Go Years: When Retirement Spending Is Often Highest

Imagine finally having the freedom to do everything you've been putting off.

You might want to travel more frequently, pursue a passion project, renovate your home, or spend additional time with family.

For many retirees, the beginning of retirement represents an opportunity to enjoy experiences that weren't possible during their working years.

Naturally, those experiences can require more money.

During the Go-Go Years, discretionary expenses often increase because you're actively enjoying your newfound flexibility.

You may spend more on vacations, entertainment, dining, hobbies, and personal projects.

And here's what traditional retirement planning sometimes overlooks: You may not want or need to maintain this same spending level indefinitely.

The experiences you prioritize at the beginning of retirement may become less important later.

That doesn't mean you should spend recklessly.

It means your retirement income plan should consider when you'll likely want to use your money—not simply how much you'll withdraw every year.

A plan that recognizes higher discretionary spending early in retirement may provide more flexibility without automatically requiring the same spending level throughout your entire retirement.

2. The Slow-Go Years: When Your Spending Priorities Change

As retirement progresses, many people naturally begin to adjust their lifestyles.

Perhaps you still enjoy traveling, but you prefer fewer trips.

Maybe your favorite activities become spending time with family, enjoying your home, or pursuing hobbies that don't require substantial expenses.

This transition represents the Slow-Go Years.

One of the most important findings behind the Retirement Spending Smile is that spending often declines because preferences and activities change—not necessarily because retirees are running out of money.

Consider someone who initially takes several major vacations each year.

Eventually, that person may prefer occasional trips closer to home.

The result?

Travel expenses decrease, even though the retiree still enjoys a comfortable lifestyle.

This distinction matters.

Lower spending doesn't automatically mean a lower quality of life.

For many households, it simply reflects a different set of priorities.

And when your retirement plan accounts for those changes, it may reveal that you don't need the same inflation-adjusted spending allowance every year.

Of course, essential expenses such as housing, food, insurance, and utilities don't necessarily decline in the same way.

That's why an effective retirement plan should distinguish between necessary expenses and discretionary spending.

3. The No-Go Years: Why Healthcare Changes the Equation

During the final phase of the Retirement Spending Smile, discretionary spending may decline further.

Activities such as frequent travel and major recreational purchases often become less common.

However, another important expense can become more significant: healthcare.

Medical treatment, additional assistance at home, and long-term care services may create substantial financial obligations.

This is where retirement planning requires particular attention.

Although research suggests that overall spending may remain below earlier retirement levels for many households, individual healthcare and long-term care costs can vary dramatically.

Some retirees experience relatively manageable medical expenses.

Others face significant care-related costs that place considerable pressure on their savings.

For this reason, the Retirement Spending Smile should never be interpreted as a reason to ignore future healthcare expenses.

Instead, it highlights the importance of building flexibility into your financial plan.

Your spending may decrease in some categories while increasing in others.

A thoughtful retirement strategy considers both possibilities.

The goal isn't to predict every future expense perfectly.

It's to prepare for a range of potential outcomes while preserving the freedom to enjoy retirement along the way.

Could You Actually Need 20% Less for Retirement?

One of the most intriguing implications of Blanchett's research is that traditional retirement planning assumptions may overstate the savings required for certain households.

Under the study's modeling assumptions, accounting for changing spending patterns could reduce estimated retirement savings needs by as much as approximately 20%.

That's a substantial difference.

But it doesn't mean everyone can safely reduce their retirement savings target by 20%.

The actual impact depends on several factors, including your desired lifestyle, guaranteed income, investment portfolio, healthcare needs, and willingness to adjust spending.

The research also suggests that spending patterns may differ depending on household wealth.

Households with more discretionary income often have greater flexibility to reduce optional expenses later in retirement.

Meanwhile, households whose budgets primarily cover essential living expenses may experience smaller spending declines.

This means the Retirement Spending Smile may be more pronounced for some retirees than others.

The important lesson isn't that you should automatically save less.

It's that your retirement savings target should reflect your personal spending expectations rather than relying entirely on generalized assumptions.

Why the Traditional 4% Rule Doesn't Tell the Whole Story

You've probably heard of the 4% rule.

It's a commonly referenced retirement withdrawal guideline that suggests withdrawing 4% of your initial retirement portfolio in the first year, then adjusting that dollar amount for inflation in subsequent years.

The rule provides a useful starting point for understanding retirement withdrawals.

However, it's based on a simplified approach to spending.

It doesn't necessarily reflect how your actual expenses may change throughout retirement.

For example, imagine that your retirement plan assumes you'll maintain the same inflation-adjusted lifestyle spending for decades.

But what happens if your discretionary spending naturally declines?

You may end up withdrawing less than your original projections suggest.

That could affect how much you need to accumulate before retiring.

It could also influence how you allocate investments, manage withdrawals, and prepare for future expenses.

This doesn't make the 4% rule useless.

It simply means that a fixed withdrawal framework may not capture every aspect of your financial life.

And that's where personalized retirement income planning becomes especially valuable.

A Real-Life Example: How Bill's Retirement Plan Changed

To understand how the Retirement Spending Smile works in practice, consider an example from our retirement planning experience.

Bill was preparing for retirement after building a career in the healthcare industry.

He had accumulated retirement savings and earned a substantial pension.

Together, these resources would support his retirement lifestyle.

However, his original financial projections raised concerns.

His plan assumed that his spending would remain consistent after adjusting for inflation.

Under those assumptions, his retirement portfolio was projected to have only a relatively small financial cushion later in retirement.

Naturally, that made him cautious about spending.

He worried about whether he could afford to enjoy the activities he'd been looking forward to.

But his original plan wasn't fully accounting for how his lifestyle might change.

Giving Bill More Freedom Early in Retirement

Bill had several personal goals.

He wanted to travel and spend time restoring his old Monte Carlo.

These weren't random expenses.

They were meaningful activities he hoped to enjoy after leaving the workforce.

Rather than assuming Bill would spend the same amount indefinitely, we incorporated the Retirement Spending Smile into his financial projections.

During his more active retirement years, we planned for greater discretionary spending.

This gave Bill a clearer picture of how he might enjoy those experiences while still accounting for future financial needs.

Planning for Lower Spending Later

As Bill's lifestyle changed, we projected a gradual reduction in discretionary expenses.

He might travel less frequently and spend more time enjoying hobbies closer to home.

That could reduce the amount he needed to withdraw from his investments.

We also considered potential healthcare and long-term care expenses later in retirement.

By combining changing spending assumptions with a flexible income distribution strategy, we developed a plan that better reflected Bill's expected lifestyle.

The result was a retirement strategy designed to balance enjoyment today with financial security tomorrow.

Bill's experience illustrates an important principle: Retirement planning isn't simply about making your money last. It's also about making thoughtful decisions about when and why you use it.

His situation is an individual example, not a guarantee that similar planning will produce the same outcome for everyone.

The Hidden Cost of Overestimating Your Retirement Needs

Saving for retirement is important.

But what happens when your financial projections consistently overestimate how much you'll need?

You might continue working longer than necessary.

You could postpone experiences you've wanted to enjoy.

Or you might enter retirement feeling reluctant to spend money, even when your financial situation could support it.

This is one of the most overlooked consequences of overly conservative retirement assumptions.

Consider someone who delays retirement because their financial calculator suggests they need a significantly larger portfolio.

If that projection assumes constant inflation-adjusted spending without considering realistic lifestyle changes, it may not tell the entire story.

Of course, conservative assumptions can serve a valuable purpose.

They help prepare for uncertainty, unexpected expenses, and difficult investment markets.

But excessive conservatism can also create trade-offs.

The challenge is finding an appropriate balance between protecting your future and enjoying the present.

That's why retirement planning should involve more than identifying one savings number.

It should help you understand how your income, expenses, and priorities may evolve.

What Your Retirement Income Plan Should Consider

The Retirement Spending Smile offers a useful framework, but it's only one component of a comprehensive retirement strategy.

Your plan should also consider several interconnected financial decisions.

Your sources of guaranteed income

Social Security benefits and pensions may cover part of your essential living expenses, potentially reducing the amount you need to withdraw from investments.

Your discretionary spending goals

Travel, hobbies, charitable giving, and major purchases may be concentrated during particular periods of retirement.

Your investment withdrawal strategy

Market performance and the timing of withdrawals can influence how long your portfolio lasts.

Your tax situation

Withdrawals from traditional retirement accounts, Roth accounts, and taxable investments may create different tax consequences.

Your healthcare and long-term care exposure

Medical expenses and unexpected care needs deserve careful consideration, even when your projected discretionary spending declines.

These factors work together.

A change in one area can affect several others.

For example, spending more early in retirement may be reasonable under one set of investment and income assumptions but create additional risk under another.

That's why simply applying a spending reduction percentage isn't enough.

A comprehensive retirement plan should test multiple scenarios and account for uncertainty.

Are You Planning Around the Wrong Retirement Number?

If you've been using an online retirement calculator, there's a good chance you've seen projections based on consistent annual spending.

That approach can be helpful for establishing a baseline.

But it may not fully reflect how you intend to live.

The Retirement Spending Smile encourages you to think differently.

Instead of asking only, "How much money do I need for retirement?" consider a more useful question:

"How much money will I need during the different stages of my retirement?"

That distinction can influence your entire financial strategy.

You may discover that certain experiences deserve a larger portion of your early retirement budget.

You might recognize that some expenses are likely to decline naturally.

And you may identify financial risks that require additional preparation.

The goal isn't to create a retirement plan that assumes everything will go perfectly.

It's to create one that reflects realistic spending expectations while preparing for uncertainty.

Take the Next Step Toward a More Flexible Retirement

At Gudorf Financial Group, we believe retirement planning should help you make the most of the money you've worked hard to accumulate.

That means looking beyond traditional savings targets and understanding how your financial needs may change.

Through our retirement planning process, we evaluate income sources, investment strategies, taxes, healthcare considerations, and long-term financial goals.

We want you to understand not only whether your retirement plan is sustainable, but also how it can support the lifestyle you envision.

Ready to find out whether your retirement plan reflects your actual spending needs?

Schedule Your Free Retirement Assessment

Start with a 20-minute introductory call with our team to discuss your retirement goals and explore your planning options.

Conclusion: Your Retirement Spending Doesn't Have to Follow a Straight Line

Retirement isn't one unchanging financial phase.

Your interests, priorities, and expenses can evolve over time.

The Retirement Spending Smile helps explain why a traditional, flat spending assumption may not accurately reflect your retirement needs.

For some households, accounting for these changes could meaningfully affect retirement savings targets and withdrawal strategies.

For others, essential expenses and healthcare risks may limit how much spending can decline.

The key is understanding your individual circumstances.

A successful retirement plan shouldn't focus exclusively on how much money you can accumulate. It should also help you make informed decisions about how to use that money throughout retirement.

And sometimes, changing the assumptions behind your retirement plan can change the possibilities you see for your future.

Transcript: Prefer to Read — Click to Open

Danny (00:00.088)

Think you need a steady inflation adjusted income stream to cover all of your living expenses in retirement? That’s the conventional wisdom. And it’s the basis for most retirement plans and financial calculators out there. But what if? What if the reality is different? What if retirees actually spend their money in a way that means you might need up to 20 % less in retirement income than you think? Understanding this,

could be a game changer, giving you more freedom and less stress as you plan for retirement. The reason for this discrepancy lies in a little known, rarely discussed concept known as the retirement spending smile. This research reveals a surprising truth about how retirement spending habits actually change over time, following a distinct pattern rather than a flat line of expenses year after year.

understanding this pattern could be a major impact on your income planning. So in this video, I’ll dive into the details of what the retirement spending smile is and how it might affect you. Hey there, I’m Danny Gudorf, a financial planner and owner of Gudorf Financial Group, where we help individuals and families over 50 plan for a limitless retirement. The research we’re focusing on today comes from a paper titled

estimating the true cost of retirement. This paper was authored by David Blanch of Morningstar. In this study, Blanch found that retiree spending patterns actually don’t align with conventional assumptions of a steady inflation adjusted withdrawal rate from their portfolios. Instead, retirees tend to follow a more dynamic path, a path shaped like a smile with three distinct

phases. First, there’s a go-go phase, then a slow-go phase, and last, a no-go phase. And this concept was further popularized by Michael Stein, a CFP professional who coined these memorable terms to describe how spending shifts as people age. So let’s unpack these three phases in detail, starting with the go-go years. The early years of retirement, often referred to as the go-go years,

Danny (02:27.232)

and it’s easy to see why. During this time, retirees generally have higher than average spending. They’re full of energy, full of health and time and a sense of newfound freedom. This is when retirees feel most capable and are eager to do the things they’ve always dreamed of. Whether that means traveling the world, exploring new hobbies or simply enjoying life with their newfound time. Many people imagine

themselves checking off bucket list items first. Finally, taking those dream vacations and spending more freely on the experiences that enhance their quality of life. Naturally, this means their discretionary spending tends to be higher in these early retirement years. However, as retirees move into their mid to late seventies, things start to shift. This next stage is called the slow go phase. The slow go years,

are characterized by a gradual decrease in spending. Retirees may still want to travel or participate in hobbies, but they do so less frequently. It’s not necessarily because of financial constraints more often. It’s simply a matter of changing interest or the fact that they don’t have quite as much energy as they did before. They start to stay closer to home or

They favor a more relaxed lifestyle over the frequent trips or adventures they initially planned on. The level of discretionary spending starts to taper off and overall living costs begin to decline as a result. Finally, we arrive at the no-go years, which is typically when someone is in their late eighties or beyond. During the no-go phase, retirees tend to become significantly less active

which results in even lower discretionary spending. They may not travel at all and their focus shifts primarily to day-to-day comforts and necessity. However, one thing worth noting is that in this stage, medical and healthcare expenses can start to increase. Although these costs rise, they usually aren’t enough to offset all the other areas of spending that have significantly decreased by this point. Contrary to popular fears,

Danny (04:50.86)

the uptick in healthcare costs often remains well within manageable limits and doesn’t lead to an overall spike in total spend. Interestingly, Blanche’s research shows that the spending smile pattern is even more pronounced for affluent retirees. This is because those with higher net worth tend to have more discretionary spending in the go-go years, which winds down even more noticeably over time.

On the other hand, lower net worth households experience less of a decline in their spending during the middle years because they typically have fewer discretionary expenses to begin with. Their spending pattern tends to be more stable with less pronounced changes in the different retirement phase. The key takeaway though from Blanche’s research is that retirees may need up to 20 % less in savings than what conventional wins them.

suggest. This is because the typical flat spending model doesn’t reflect how retirees truly spend. Instead of assuming a steady inflation adjusted spending rate, the retirement spending smile captures the real ups and downs that come with different phases of retirement. The traditional approach to retirement planning has often relied on the 4 %

A rule of thumb that suggests retirees can safely withdraw 4 % of their portfolio annually adjusted for inflation. And this will ensure their retirement savings last throughout retirement. The simplicity of this approach makes it very popular out there. But it’s also important to realize that it doesn’t always account for the changing nature of spending needs across these three retirement phases.

The reality is that spending is higher in those active go-go years and dips during the middle slower years and may increase slightly again in the no-go years. However, even with that uptick in spending, rarely do we see a very high spending level. Unfortunately, many retirement plans and online calculators are still built on this outdated assumption.

Danny (07:13.752)

that retirees spending will be flat throughout their retirement. As a result, people may end up over saving and setting aside more than they truly need to ensure a comfortable lifestyle. While saving more isn’t necessarily a bad thing, it can lead to unnecessary sacrifices during your working years when you could have enjoyed some of that money instead. Or it could cause you to retire

two, three, or even five years later than you technically could. To illustrate how the retirement spending smile can be applied in real life, let’s look at an example couple. His name is Bill. Bill is 65 years old and is planning to retire sooner. He has a sizable pension that he has earned during his time in the healthcare industry, along with some additional savings in his retirement accounts.

the combination of these resources will be used to fund his retirement lifestyle. When we started working with Bill’s retirement plan, the numbers didn’t quite add up. His initial plan assumed a static inflation adjusted spending level throughout retirement. It projected that he would cut things pretty close by the time he reached age with only a small buffer left in his portfolio. It was clear

that his approach was overly conservative and it risked limiting the quality of his retirement life. To address this, we incorporated a few items in his retirement plan. One was the retirement spending smile and two was a dynamic income distribution approach to his retirement spending. This allowed us to create a more realistic and sustainable plan. One,

that gave Bill the flexibility to enjoy his early retirement years without worrying too much about running out of money later on. In Bill’s go-go years, we factored in a higher level of discretionary spending to account for his passion projects, like restoring the old Monte Carlo or his plans to travel. We allocated a larger portion of his pension and savings towards these pursuits.

Danny (09:37.812)

Understanding that this is when he’d be most active and most eager to spend on those experiences. By doing so, we made sure Bill’s retirement started off on the right foot, filled with the freedom and activities he had always dreamed of. As Bill moved into his slow-go years, we projected that his spending would naturally start to decline. This reduction in spending wasn’t forced.

Rather, it was a reflection of his changing lifestyle. In his mid to late 70s, Bill still might travel, but less frequency. He’ll focus more on spending time with family and enjoying hobbies closer to home. During this phase, we anticipated that he wouldn’t need to draw as much from his portfolio as his discretionary expenses would be considerably lower. Finally, in the no-go years, we planned for Bill

spending to decline even a little bit further, with the exception of an uptick later on in life to cover any health care or long-term care expenses that might be needed. By factoring this into Bill’s plan, we ensured that he had adequate resources for everything he need without cutting back on essential comforts. For Bill, this was a game changer.

Not only did it give him confidence that his money would last, but it also allowed him to fully enjoy his early retirement without the nagging worry that he might outlive his savings. The plan was rooted in research, evidence, and realistic understanding of how retirees actually spend their money and not just outdated assumptions. So there you have it. It’s the surprising truth.

about how retirees actually spend their money in retirement and what it might mean for how much you need to save for your retirement. Armed with this knowledge, take a look at your own retirement plan. Does it incorporate the retirement spending smile? Or does it account for the natural ebb and flow of spending throughout your retirement years? If not, and you’re getting close to retirement, it might be time

Danny (11:53.88)

to get your retirement plan updated. Once again, I’m Danny Gudorf, owner and financial planner at Gudorf Financial Group. If you’re ready to discover how we can help you make the most of your retirement, visit GudorfFinancial.com forward slash get started. This is where you can easily schedule a 20 minute introductory call with someone from our team to kickstart your free retirement assessment.

and start the planning for the future you deserve.

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