The Retirement Spending Smile: Why Expenses Won't Stay Flat

Picture this: you spend months carefully building a retirement budget. You estimate your annual expenses, multiply by 25 or 30 years, and arrive at your target nest egg. It feels thorough. It feels responsible. But there is one assumption quietly embedded in that math that could throw off your entire plan: that you will spend roughly the same amount every single year.

In reality, most retirees do not spend in a straight line. Decades of research into actual retiree behavior reveal a far more interesting pattern. Spending tends to be relatively high in the early retirement years, then dips noticeably in the middle years, then climbs again toward the end of life as healthcare and care needs increase. When you draw this pattern on a graph, it forms a shape that financial gerontologists and planners have taken to calling the retirement spending smile.

Understanding this curve could reshape how you think about funding retirement. It means your income needs will shift, sometimes dramatically, across three distinct chapters of retired life. And if your plan does not account for those shifts, you may find yourself either unnecessarily anxious about money in your 70s or dangerously underprepared for costs in your 80s and beyond.

The go-go, slow-go, no-go framework is one of the most practical ways to think about retirement spending. It was popularized by retirement planning professionals to describe how energy, activity, and spending naturally evolve across a multi-decade retirement. Each phase has its own financial signature.

The Go-Go Years (roughly ages 62-75)

This is the phase most people daydream about. You are healthy, energetic, and finally free from a work schedule. The go-go years tend to be the most expensive chapter of retirement, and with good reason. Travel is often a priority. Hobbies get upgraded. Grandchildren get spoiled. Home improvement projects that were deferred for years finally get done. Dining out happens more frequently. You are essentially buying back your time with experiences.

For many retirees, early retirement spending can actually exceed pre-retirement spending, at least temporarily. This surprises people who assumed retirement would mean lower costs. It can, eventually, but not always right away.

The Slow-Go Years (roughly ages 75-85)

Gradually, the pace changes. Long-haul travel becomes less appealing or less practical. Physical limitations begin to influence what activities feel enjoyable. Restaurant meals at 11pm give way to earlier, quieter evenings. Leisure spending declines naturally, not because of financial constraint, but simply because interests and energy levels shift.

This is typically when the spending curve dips. Basic living costs like housing, food, and utilities remain relatively steady, but the discretionary layer of spending tends to thin out considerably. For many retirees, the slow-go years feel financially comfortable precisely because outgoings have eased while investment portfolios have had more years to grow.

The No-Go Years (roughly ages 85+)

Here is where the smile curves back upward, and where many retirement plans fall short. In the no-go years, physical activity slows dramatically, but healthcare costs accelerate. Prescription medications, specialist visits, home health aides, assisted living, and eventually nursing care can generate expenses that dwarf anything seen in the go-go years. This is the part of the smile that catches people off guard.

It is worth noting that these age ranges are general illustrations. Individual health, genetics, lifestyle, and circumstances vary enormously. Some people are vigorous well into their late 80s. Others face significant health challenges in their mid-70s. The phases describe a pattern, not a precise schedule.

The standard retirement calculator asks you to enter your annual spending, then projects that figure forward for 20, 25, or 30 years, typically with an inflation adjustment. This approach is simple, but simplicity has costs here.

First, a flat-spending model can make mid-retirement look more stressful than it needs to be. If your slow-go years genuinely cost 20-25% less than your go-go years, a calculator built around your peak early spending number will tell you that you need more money than you may actually require. That is not the worst problem to have, but it can lead people to work longer than necessary or withdraw less than they comfortably could.

Second, and more critically, a flat model tends to underestimate late-life healthcare costs. The U.S. Bureau of Labor Statistics Consumer Expenditure Survey consistently shows that healthcare spending as a share of total expenses rises sharply in older age groups. Meanwhile, a flat assumption might lead you to believe your healthcare budget in your 80s will look like it did in your 60s. It almost certainly will not. Long-term care costs alone are frequently far higher than retirees anticipate, and they arrive precisely when a flat-spending plan suggests things should be coasting along.

Third, a flat model ignores the reality that inflation does not hit all expense categories equally. Healthcare inflation has historically run higher than general inflation for many years. A retirement plan that applies a single inflation rate to a flat spending number misses this dynamic entirely.

Consider a hypothetical example for illustration only. Imagine a 62-year-old retiree who estimates spending $80,000 per year in retirement. A flat-spending calculator projects that figure across 30 years and produces a target number. But in reality, this person might spend $90,000-$95,000 annually in their go-go years, drop to $65,000-$70,000 in their slow-go years, then climb back to $85,000-$100,000 or more in their no-go years once home care or assisted living enters the picture. The average might land near $80,000, but the timing of those costs matters enormously for portfolio sustainability. This example is illustrative only and not a prediction of any individual's experience.

It would be incomplete to discuss the no-go years without spending more time on healthcare, because it is the primary engine driving the right side of the smile curve upward.

Medicare becomes available at 65, which provides significant relief compared to the coverage gap many early retirees face. But Medicare is not free, and it does not cover everything. Dental, vision, and hearing care are among the major gaps in standard Medicare coverage, and these become more relevant precisely as people age. Medicare Part B premiums, Part D prescription drug costs, and supplemental Medigap or Medicare Advantage premiums all add up to meaningful ongoing expenses.

Beyond routine healthcare, long-term care represents the biggest financial unknown for most retirees. Home health aides, adult day care, assisted living facilities, and skilled nursing facilities all carry substantial price tags that vary considerably by location. These costs are not covered by standard Medicare in most circumstances.

An Health Savings Account (HSA) is one tool that is sometimes discussed in the context of retirement healthcare planning. Contributions to an HSA are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free, often called the triple tax advantage. Unused balances can carry forward indefinitely, which means building up an HSA balance during working years is a strategy some financial planners discuss as a way to earmark funds specifically for later healthcare costs. Whether this approach makes sense in any individual situation is something a qualified financial adviser can help evaluate.

The Income-Related Monthly Adjustment Amount (IRMAA) is another healthcare-adjacent cost worth understanding. Higher-income retirees pay more for Medicare Part B and Part D because of IRMAA surcharges, which are based on income reported two years prior. Thoughtful management of taxable income in retirement, including the timing of Roth conversions and other withdrawals, can influence whether IRMAA applies. This is a nuanced area where professional guidance is particularly valuable.

Rather than using a single annual spending figure, a phased approach involves building separate spending budgets for each chapter of retirement, then stress-testing whether your income sources and portfolio can support all three. Here is a general framework that some financial planners use as a starting point for this kind of modeling:

• Identify your go-go spending budget. This should reflect your actual intended lifestyle in early retirement, including travel, hobbies, dining, and any large planned expenditures like home renovations or helping adult children. It may be higher than you expect.
• Estimate a slow-go reduction factor. Many planners use a rough reduction in the range of 15-25% from go-go spending for the slow-go phase, reflecting naturally lower discretionary costs. The right figure depends heavily on individual circumstances and lifestyle preferences.
• Build a separate healthcare and care cost budget for the no-go years. This should be modeled independently from general living costs, given that healthcare inflation behaves differently from overall inflation. Resources like the Genworth Cost of Care Survey (published annually) offer location-specific estimates of care costs that can serve as a reference point.
• Map your income sources to each phase. Social Security, pensions, and required minimum distributions from traditional IRAs and 401(k)s (which begin at age 73 under current IRS rules) all affect how much you need to draw from your portfolio in each phase. The timing of Social Security claiming, in particular, has significant implications for income in the later phases of retirement.
• Consider how your portfolio withdrawal strategy aligns with the curve. Some people find it worth exploring strategies like the bucket strategy for retirement withdrawals, which segments assets by time horizon and purpose. Whether any particular withdrawal approach fits your circumstances is a conversation for a financial adviser.

Modeling tools that allow for variable spending across different phases, rather than a flat assumption, will generally produce more realistic projections. Monte Carlo simulations differ from straight-line projections in important ways, and understanding both approaches can help you ask better questions when reviewing retirement scenarios.

It is also worth revisiting the income replacement myth. The old rule of thumb suggesting you need 70-80% of pre-retirement income in retirement does not capture the smile curve at all. Your actual replacement rate may be higher than that in early retirement and lower in the middle years, before climbing again.

A few important nuances are worth addressing as you think about this framework.

The smile is not universal. Not every retiree experiences a pronounced dip in the middle years. Some people maintain high activity levels and discretionary spending well into their late 70s and beyond. Others face health challenges earlier than expected, compressing the go-go phase. The smile is a pattern observed across populations of retirees, not a guarantee for any individual.

Inflation still matters throughout all three phases. Even when total spending dips in the slow-go years, the purchasing power of your dollars continues to erode. A plan that accounts for phased spending should still apply realistic inflation assumptions to each phase, recognizing that healthcare inflation may run higher than general inflation.

Cognitive decline can affect spending patterns in complex ways. Some research suggests that financial decision-making ability tends to decline with age, and that some individuals become more vulnerable to scams, poor financial decisions, or simply less attentive management of their money. Planning for who will help manage finances in later years is a meaningful, often overlooked dimension of retirement preparation.

Couples face added complexity. When one partner passes away, the surviving spouse often faces a significant shift in both income (Social Security survivor benefits replace two checks with one) and expenses (some fixed costs are shared, while others remain constant). The no-go spending analysis for couples generally needs to model both joint and single-survivor scenarios separately.

This article is for general educational purposes only and does not constitute personalised financial, tax, or investment advice. Every individual's financial situation is different. Please consult a qualified financial adviser, tax professional, or financial planner before making decisions about retirement planning, spending strategies, or investment approaches.