How Much Do People Spend in Retirement?

We’ll often speak to families about their retirement spending plans and inevitably they’ll ask, “What do most people spend in retirement?”

Every family is different, and your numbers may look nothing like the ones above, but I thought this chart from JP Morgan provides a decent benchmark.  For families partially or fully retired with $1 – $3mm of investable wealth, pre-tax spending, on average, starts around $115k / year, slowly drops until around age 80, and then begins to rise in large part to increased housing and health care expenses.  This pattern is often referred to as the “retirement spending smile.”

Why is this important?

First, none of our pre-retiree clients have ever retired before and often can’t picture how their spending will change once they stop working.  This chart provides a helpful framework.  Second, most planning tools assume a steady annual increase in expenses in line with inflation.  That simply isn’t the case. Most retirees have expenses that go down over time or expenses that rise but more slowly than inflation. This reality requires adjusting the default assumptions when developing the retirement plan.

Finally, averages tell us nothing about the individual.  For example, if a couple has $1,000,000 saved but also has a $150k pension on top of Social Security and no desire to leave behind a large estate, they will likely spend more.  If a couple has no pension and a preference for leaving behind a large estate, they will need to spend less.  However, goals don’t achieve themselves.  Whatever your situation may be, the only way to effectively get where you want to go is to consistently execute on a long-term plan.  That is what retirement planning is all about.