Retirement Spending Explained

Above is a graph of a typical retiree’s spending over time. It’s not scientific; it’s not derived from a famous study, but it is a trend that I have found to hold true with almost all retired clients.

Let me explain.

The upward slant

Life costs more every year. The 2023 word of the year: ‘inflation’! Essentially, the quality of life you desire will cost you slightly more next year than it does this year. Nothing surprising here.

The dip

Transitioning into retirement is HARD. For purposes of this article, let’s not even mention the sudden lack of routine and existential questioning of ‘my value to the world’, let's talk about money.

If you’re retiring, you most likely have more money than you will ever need. You’ve made it! I know it might not feel that way, but it’s likely true.

BUT, in my experience, it takes a few months - or even years - to adjust to this reality. And, instead of splurging on things to make their life more enjoyable, most retirees pinch pennies. 

What I imagine the speech bubbles in their heads to be saying:

• “I don’t have a regular pay cheque coming in, this is scary!”
• “My worst nightmare is having to rely on my kids for money.”
• “No big trips this year. Let's make sure we can afford it first. Maybe next year, or the year after.”

They stop spending entirely, tightening the purse strings to preserve a sense of security.

Enter the nerds

This is where financial planners like me come in. It’s our responsibility to show retirees (including you some day) that they have enough and to encourage (sometimes bully) them into spending some of their hard earned money on themselves and things that make them happy.

I love using empirical data to illustrate to people that they won’t be on the ramen and lemon water diet if they buy a new car, treat the family to Disneyland, or book the European vacation they’ve been dreaming about. I love showing them what’s possible using real numbers.

The peak

Back to the graph. Inevitably there will be a few years of overspending. Perhaps it's an overdue kitchen renovation, replacing the ol’ 25-year-old Crown Vic, or buying a golf membership. The spending pendulum always swings a bit ‘too far’ in the other direction…temporarily.

The leveling out

But you know what happens next? Life - and spending - return to normal. People who have a lot of money didn’t get there by accident; they have good money habits and an acute appreciation for wealth. They’ll return to their good habits after having a little fun. I’ve yet to see a senior citizen fall to a late onset spending craze or gambling addiction😂.

Truth be told, spending actually goes down later in life, but it’s okay to not plan for that. Some of our parents' (or our own) biggest worries are increased medical and long term care expenses, so showing them they can manage heightened expenses while maintaining a happy ending is helpful to their overall spending habits.

Retirees: Spend Your Money!

If you are reading this and have a retired parent not spending their money, please forward this to them! If you are retired or approaching it - Spend. Your. Money. Everything is going to be okay.

If you need a bully (a kind, empathetic, and numbers-driven bully), I’m here for you. 😂