Why does retirement spending follow a "smile" pattern and how should you adjust your withdrawals?

The spending smile is an empirical pattern discovered by retirement researchers: retirees don't spend evenly throughout retirement. Instead, spending peaks in the early years (ages 65–75, when retirees are healthy and active), declines through middle retirement (ages 75–85), then rises sharply again in late retirement (ages 85+, when healthcare and care costs increase). The "smile" shape—high, then low, then high again—is consistent across income levels and countries. This pattern has profound implications for withdrawal strategies. A retiree who plans to withdraw a constant real amount (adjusted for inflation) every year will overspend early on (wasting assets when travel and activity are possible), underspend in the middle (accumulating unnecessary wealth), and face a potential shortfall late in life when costs spike. Understanding and planning for the spending smile allows retirees to align withdrawals with actual needs, optimize asset depletion, and ensure security when healthcare costs dominate.

Quick definition: The spending smile describes the empirical pattern of retirement spending, which is high in early retirement, lower in middle retirement, and rises again in late retirement due to healthcare and care costs.

Key takeaways

• Retirees typically spend 20–30% more in the first 10 years of retirement than in the middle decade, driven by travel, hobbies, and social activities.
• Spending declines 20–30% during ages 75–85 as physical activity naturally decreases and travel becomes less frequent.
• Late-retirement spending (85+) increases sharply, driven by healthcare, home care, assisted living, and long-term care costs—often exceeding early-retirement spending.
• Planning withdrawals around the spending smile allows retirees to front-load travel and experiences while young, then reduce spending during the stable middle years, while reserving capital for healthcare and care.
• Healthcare costs are the primary driver of late-retirement spending increases; understanding Medicare, supplemental insurance, and long-term care is essential.

The empirical spending smile

Research by Vanguard, Morningstar, and the Journal of Financial Planning documents the spending smile across diverse retiree populations. The pattern holds even when controlling for income, geography, and marital status.

Typical spending trajectory (as a percentage of early-retirement spending):

• Ages 65–70: 100% (baseline).
• Ages 70–75: 110–120% (peak travel, grandchildren visits, major home projects).
• Ages 75–80: 80–90% (travel begins to decline, but still active; home is paid off or maintained).
• Ages 80–85: 70–80% (further activity reduction; entertainment and travel decline significantly).
• Ages 85–90: 90–100% (healthcare and care costs rising, offsetting reduced discretionary spending).
• Ages 90+: 110–120% (high healthcare, possible assisted living or in-home care).

This pattern doesn't represent deprivation—it reflects natural changes in activity and circumstance. A retiree at 78 who has traveled extensively in her 60s and 70s may choose to travel less and spend time with family locally. At 88, if she requires in-home care or assisted living, her spending rises again, though in different categories (care, healthcare) than early-retirement spending (travel, dining).

The early-retirement peak: Travel and experience

The first decade of retirement typically sees the highest discretionary spending. Retirees, freed from work, are healthy and often have the time and energy for the activities they postponed. This is when most cruises, international trips, and adventure travel occur. It's also when grandparents provide financial support to grandchildren, when home upgrades are undertaken, and when new hobbies (golf, hobbies, club memberships) are established.

Research from the Employee Benefit Research Institute found that retirees age 65–70 spend an average of $47,000 annually (in 2024 dollars), while those 70–75 average $52,000—a 10% increase. This reflects the reality that early retirement is often the most expensive phase, not the cheapest.

Early-retirement spending categories (typical allocation):

• Housing: 25–30% (property tax, insurance, maintenance, utilities)
• Healthcare: 10–15% (insurance, copays, medications)
• Transportation: 15–20% (car payments or lease, insurance, gas, maintenance)
• Food and dining: 12–15% (groceries, restaurants)
• Travel and entertainment: 15–20% (vacations, entertainment, hobbies)
• Gifts and charitable giving: 5–10%
• Other: 5–10%

The middle-retirement decline: Activity naturally drops

From ages 75–85, spending typically declines 20–30% from peak levels. This reflects genuine changes in activity, not forced austerity. A retiree who spent $52,000 in her early 70s may spend $42,000 in her late 70s—not because she's struggling, but because:

• International travel becomes less appealing; she may prefer shorter, closer trips.
• Hobbies require less spending as she settles into established interests.
• Entertainment spending (concert tickets, dining out) often declines naturally.
• Grandchildren may be older and require less financial support.
• Major home projects are completed; maintenance spending normalizes.

This is a period of stability and contentment for many retirees. They've had the active adventure phase; now they're enjoying a quieter rhythm—local activities, family time, reading, smaller social gatherings. The reduced spending isn't deprivation; it's a natural shift.

Healthcare spending during this phase remains relatively stable (10–15% of budget) because many retirees are still healthy and active. Medicare covers most routine care; insurance premiums are stable.

The late-retirement surge: Healthcare and care costs

By age 85, healthcare and care costs begin to dominate spending. This is where the spending smile curves back upward. A retiree who spent $42,000 in her late 70s might spend $55,000+ in her late 80s and 90s.

Late-retirement spending drivers:

• Supplemental insurance: Medicare Supplement plans (Medigap) or Medicare Advantage premiums increase with age; some plans cost $400–$500 monthly.
• Out-of-pocket healthcare: Deductibles, copays, hearing aids, dental work, vision care, and medications add $5,000–$10,000 annually.
• In-home care: Part-time or full-time care aides cost $25–$75 per hour, or $1,000–$5,000 monthly.
• Assisted living: Average cost is $4,500–$6,000 monthly, or $54,000–$72,000 annually.
• Nursing care: Full-time nursing care in a facility averages $6,000–$10,000+ monthly.
• Prescriptions and medical equipment: Orthopedic aids, mobility devices, medications.

For a retiree requiring part-time care (15 hours weekly) by age 88, the cost might be $1,560 monthly ($18,720 annually), added to baseline spending of $42,000—totaling $60,720. For one requiring full-time assisted living, costs could reach $60,000–$72,000 annually from care alone.

Planning withdrawals around the smile

A retiree who plans to maintain constant real withdrawals will either overspend early (when she's less likely to run out of money and can enjoy experiences) or underspend and accumulate excess wealth. Instead, smart retirees adjust their planned withdrawal schedule to match the spending smile.

Withdrawal strategy aligned with the spending smile:

A retiree starts with a $1.2 million portfolio at age 65, expecting to live to age 95. She plans for the spending smile:

• Ages 65–75 (10 years): Withdraw 3.8% annually = $45,600 per year. Total: $456,000. This funds her peak travel and activity phase.
• Ages 75–85 (10 years): Withdraw 3.0% annually = $36,000 per year. Total: $360,000. This funds her stable, lower-spending middle phase.
• Ages 85–95 (10 years): Withdraw 4.2% annually = $50,400 per year. Total: $504,000. This funds her higher healthcare and care phase.

By aligning withdrawals to actual spending patterns, she:

1. Enjoys higher spending early while healthy and active.
2. Spends less in middle retirement when she naturally spends less.
3. Preserves capital for the high-cost late-retirement phase.
4. Depletes the portfolio (roughly) by age 95, with no excessive surplus or shortfall.

Compare this to a retiree using a simple 4% constant withdrawal ($48,000 annually): She'd overspend in her late 80s (when withdrawals feel high but care costs are higher) and may face a shortfall. Or she'd underspend in her 60s and 70s (when she could travel) and accumulate excess wealth she never enjoys.

Healthcare's role in the late-smile

Healthcare is the dominant factor in late-retirement spending increases. A retiree at age 87 who becomes frail and requires assistance faces costs that dwarf her early-retirement expenses. According to the Fidelity Retiree Health Care Cost Estimate, a 65-year-old couple retiring in 2024 can expect to spend $315,000 on healthcare (in today's dollars) throughout retirement—with the bulk occurring after age 85.

Understanding Medicare, supplemental coverage, and long-term care insurance is essential:

• Medicare: Covers 80% of hospital and medical costs for those 65+, but has deductibles and copays.
• Medigap/Medicare Advantage: Supplemental insurance adds $100–$400 monthly to cover gaps.
• Long-term care insurance: Optional; costs $2,000–$5,000 annually (less if purchased younger) and covers assisted living or nursing care.
• Out-of-pocket: Dental, vision, hearing, and medications not covered by Medicare often total $3,000–$8,000 annually.

A retiree without long-term care insurance and without a plan for the spending smile may face a shock at 87 when care costs emerge suddenly.

Emotional and psychological aspects

The spending smile also reflects emotional phases. Early retirement is often euphoric—freedom, adventure, bucket-list experiences. Middle retirement is stable and satisfying—enjoying the results of a lifetime of work. Late retirement is about legacy, family, and often, managing decline. Recognizing these natural emotional phases helps retirees accept the spending pattern as normal, not a failure of planning.

A retiree who planned to spend $48,000 annually for 30 years, only to find herself spending $60,000+ in her late 80s due to care costs, may feel she's "failing" her plan. In reality, she's experiencing a natural and documented pattern. Acknowledging the spending smile removes the guilt and allows her to focus on maximizing care and quality of life in her final years.

Real-world examples

Example 1: The travel-first retiree. Margaret retired at 65 with $900,000 and planned to withdraw 4% annually ($36,000). Following the spending smile, she instead withdrew $42,000 in ages 65–75, enabling four international trips and frequent grandchild visits. At 75, she reduced withdrawals to $32,000, which funded local activities and family time. At 85, she increased withdrawals to $38,000 to cover part-time care as her mobility declined. At 92, facing assisted living costs of $65,000 annually, her withdrawals reached $50,000 from her remaining portfolio (augmented by her pension). By accepting the spending smile, Margaret enjoyed her most active years fully, while her portfolio lasted through age 97—well beyond her initial life expectancy estimate.

Example 2: The late-life care trap. James retired with $1 million at 65 and withdrew a constant 3.5% ($35,000) annually, adjusted for inflation. He underspent in his 60s and 70s, accumulating excess wealth. At 87, he had a stroke and required full-time care, costing $70,000 annually. His portfolio, now worth $1.4 million but depleted by required withdrawals and taxes, faced a significant drain. He spent $140,000 annually for five years on care, depleting the portfolio. Had he known the spending smile and planned higher withdrawals in early retirement, he'd have enjoyed his 70s more and still had adequate resources for late-life care.

Example 3: The healthcare surprise. Diana, age 83, had planned on $45,000 annual spending based on early-retirement experience. Her healthcare costs—due to a new diagnosis—jumped to $18,000 annually (copays, prescriptions, specialist visits). Her total spending reached $63,000, forcing a withdrawal rate of 5.25% (from a $1.2 million portfolio) instead of the 3.75% she'd planned. She had to either reduce discretionary spending sharply or adjust her withdrawal plan. By age 88, as care needs continued rising, the problem worsened. Understanding the spending smile earlier would have helped Diana reserve capital for this phase.

Common mistakes

Mistake 1: Assuming flat spending throughout retirement. A retiree plans to spend exactly $50,000 per year for 30 years, adjusted only for inflation. This ignores the spending smile entirely. She overspends in her 70s (when travel is most appealing) and faces a deficit in her late 80s (when healthcare costs surge).

Mistake 2: Underestimating late-life care costs. A retiree assumes healthcare will cost $5,000–$8,000 annually indefinitely, forgetting that assisted living, nursing care, or in-home care can cost $50,000–$100,000+ annually. Failing to reserve capital for the late-smile phase risks depletion.

Mistake 3: Spending too conservatively early on. A retiree withdraws only 2.5% annually in early retirement, treating it as the safest approach, and accumulates excess wealth. By age 80, she regrets not traveling more when she was physically capable. The money sits unspent.

Mistake 4: Not factoring in a spouse's care. A married couple plans for one person's care costs but forgets that if one spouse requires assisted living ($65,000 annually) while the other remains at home, total household spending jumps to $100,000+. Account for both spouses' potential care needs.

Mistake 5: Ignoring inflation's impact on late-life costs. A retiree plans for healthcare costs of $10,000 in her late 80s, forgetting that 20 years of 2.8% inflation will raise that to $18,500. Late-life cost planning must include inflation on top of the base care costs.

FAQ

Q: How much should I withdraw in early retirement to align with the spending smile?
A: A common guideline: 4–4.5% in early retirement (ages 65–75), dropping to 3–3.5% in middle retirement (ages 75–85), then rising to 4–5% in late retirement (85+). Adjust based on your portfolio size, life expectancy, and healthcare assumptions.

Q: Should I purchase long-term care insurance to prepare for late-life costs?
A: Long-term care insurance is one option. Pros: It covers a portion of care costs (often 50–70%), protecting assets for heirs. Cons: Premiums cost $2,000–$5,000+ annually and increase with age. A cheaper alternative: self-insure by reserving $200,000–$400,000 in your portfolio specifically for care costs.

Q: What if I don't want to spend more in early retirement? Can I ignore the spending smile?
A: Yes, if you prefer to maintain modest spending and accumulate wealth for legacy. But recognize the trade-off: you'll spend less on experiences when you're healthiest and most active, and more on care when you're least able to enjoy life. Many retirees regret this choice.

Q: How does the spending smile change if I retire early (age 55)?
A: The pattern still holds, but the timeline shifts. Your peak spending might occur in your 65–75 rather than 65–70. Account for the full 40+ year timeline when planning withdrawals.

Q: What if I have a pension that increases with inflation? Does it change the spending smile?
A: A pension that adjusts for inflation reduces your need to spend down portfolio principal in early retirement (since your guaranteed income grows). You can plan more aggressive portfolio withdrawals in middle and late retirement, adjusting the smile pattern accordingly.

Q: Can I front-load my Roth conversions to align with the spending smile?
A: Yes. If you plan to withdraw more in early retirement, you might execute Roth conversions in early retirement (when you're in a lower tax bracket due to reduced income) and then take Roth distributions in late retirement (when ordinary income is higher due to RMDs and care costs).

Related concepts

• Dynamic Spending Rules
• The Floor and Upside Approach
• Healthcare in Retirement
• Social Security Planning
• Total Return vs. Income Investing
• Glossary

Summary

The spending smile is an empirical pattern showing that retirees spend heavily in early retirement (travel, hobbies, family support), moderately in middle retirement, then heavily again in late retirement (healthcare and care). Planning withdrawals around this pattern—allocating larger withdrawals in early and late retirement, smaller withdrawals in the middle phase—allows retirees to enjoy their most active years fully while preserving capital for high-cost healthcare and care in their 80s and beyond. Understanding and embracing the spending smile removes the guilt of varying spending levels and allows for more authentic, sustainable retirement plans that align withdrawals with actual life phases and costs.

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