When you picture retirement spending, you might imagine a steady stream of expenses that remains relatively consistent year after year, maybe adjusted for inflation. But research and real-world experience tell a different story. Most retirees follow what financial planners call the “retirement smile” — a U-shaped spending pattern that can significantly impact how you plan for your golden years.
What Is the Retirement Smile?
The retirement smile refers to the way spending typically changes across three distinct phases of retirement.
The Go-Go Years (Early Retirement: 60s to Early 70s)
In the first phase of retirement, spending tends to be at its highest. You’re newly retired, hopefully healthy, and eager to pursue all those dreams you postponed during your working years. This is when retirees typically:
- Travel extensively, often taking the big trips they’ve always wanted.
- Pursue active hobbies like golf, skiing, or sailing.
- Eat out frequently and enjoy entertainment.
- Help adult children or grandchildren financially.
- Make home improvements or even relocate.
The Slow-Go Years (Middle Retirement: Mid-70s to Early 80s)
As you move into your mid-70s and early 80s, spending naturally declines. You’re not less happy, you’re just settling into a different rhythm. Travel becomes less frequent and less ambitious. You spend more time with local friends and family. Many of the expensive hobbies give way to quieter pursuits, like reading, gardening, or volunteering. This phase often represents the lowest point on the spending curve.
The No-Go Years (Late Retirement: Mid-80s and Beyond)
In the final phase, spending curves back upward, creating the smile shape. This increase isn’t driven by discretionary choices but by necessity. Healthcare costs rise significantly, and many people require assistance with daily living activities. Long-term care, whether in-home help or assisted living facilities, can dramatically increase expenses.
Why the Retirement Smile Matters for Your Planning
Understanding this spending pattern has important implications for how you structure your retirement finances:
Traditional Planning Gets It Wrong
The conventional “4% rule” and similar strategies assume you’ll need the same inflation-adjusted income every year throughout retirement. But if you’re planning for 30 years of retirement with a flat spending assumption, you might be:
- Being too conservative in early retirement when you should be enjoying life.
- Oversaving for the middle years when you’ll naturally spend less.
- Undersaving for healthcare costs in your later years.
Healthcare Costs Accelerate
The uptick at the end of the smile isn’t modest. According to the Fidelity Retiree Health Care Cost Estimate, a 65-year-old retiring today should expect to spend approximately $172,500 (that’s $345,000 for a couple) on healthcare throughout retirement. And that figure doesn’t include long-term care, which can add hundreds of thousands more.
You Can’t Make Up for Lost Time
If you’re overly cautious in your 60s and early 70s to preserve assets, you may reach your 80s with plenty of money but no longer have the health or energy to do the things you postponed. Travel to Machu Picchu is much easier at 65 than 85.
How To Plan Around the Retirement Smile
Front-Load Your Enjoyment
Don’t be afraid to spend more in early retirement if you have the resources. These are your healthiest, most active years. Consider:
- Taking that dream trip sooner rather than later.
- Pursuing expensive hobbies while you can still enjoy them.
- Living a little larger in the first decade of retirement.
Build Flexibility Into Your Plan
Rather than locking yourself into a fixed withdrawal rate, consider a more flexible approach:
- Spend more in years when markets perform well.
- Pull back slightly during market downturns.
- Adjust your budget as you move through different retirement phases.
Separate Short-Term and Long-Term Money
The bucket strategy works particularly well with the retirement smile concept. Keep several years of expenses in conservative investments for your near-term spending, allowing longer-term money to remain invested for growth. This lets you spend confidently in early retirement while maintaining assets for later healthcare needs.
Plan Specifically for Healthcare
Don’t treat future healthcare costs as just another expense. Consider:
- Maximizing HSA contributions before retirement for tax-free healthcare spending.
- Purchasing long-term care insurance in your 50s or early 60s when premiums are more affordable.
- Setting aside a dedicated healthcare reserve separate from your regular retirement savings.
Consider Annuities for the End
Deferred income annuities that start payments at age 80 or 85 can be a cost-effective way to ensure you’ll have money for the expensive no-go years, even if you spend more liberally early on.
Final Thought
The retirement smile reflects how people actually live in retirement, not how spreadsheets assume they’ll live. Your 60s and 80s will likely be your most expensive decades, while your 70s offer an opportunity to live well on less.
Smart retirement planning acknowledges this reality. It means giving yourself permission to enjoy early retirement while still preparing for increased costs later. The goal isn’t to die with the most money. Instead, it’s to live fully at every stage of retirement while ensuring you never run out.
As money expert Clark Howard often says, the key to successful retirement isn’t about deprivation; it’s about making informed choices that let you enjoy life while maintaining financial security. Understanding the retirement smile helps you do exactly that.
