{"id":9933,"date":"2026-08-10T15:00:55","date_gmt":"2026-08-10T12:00:55","guid":{"rendered":"https:\/\/handoli.com\/index.php\/2026\/08\/10\/reducing-spending-throughout-retirement\/"},"modified":"2026-08-10T15:00:55","modified_gmt":"2026-08-10T12:00:55","slug":"reducing-spending-throughout-retirement","status":"publish","type":"post","link":"https:\/\/handoli.com\/index.php\/2026\/08\/10\/reducing-spending-throughout-retirement\/","title":{"rendered":"Reducing Spending Throughout Retirement"},"content":{"rendered":"

In a recent paper<\/a>, David Blanchett found (again) that household spending tends to decrease over the course of retirement. That is, it increases, but not as quickly as inflation. So in \u201creal\u201d terms, it\u2019s gradually going down.<\/p>\n

Relative to Blanchett\u2019s earlier work on how retirees change their spending over time, his latest paper had two particularly noteworthy findings.<\/p>\n

Median vs Mean<\/h3>\n

The first especially interesting finding was the difference between the median and mean (average).<\/p>\n

For the median<\/em> retiree, inflation-adjusted spending decreases throughout retirement.<\/p>\n

For the average<\/em> (mean) retiree, however, inflation adjusted spending goes back up at older ages (though it still stays below the initial level of spending).<\/p>\n

The difference appears to be significantly due to large health-related costs at older ages, which are included when calculating a mean, but which do not affect the median retiree. For example, as Blanchett writes, \u201camong those who passed away at the age of 95, the median cumulative real lifetime unexpected out-of-pocket medical expenses were only about $50,000 compared to roughly $250,000 at the 95th percentile.\u201d<\/p>\n

Reducing Spending by Choice<\/h3>\n

The second particularly interesting finding is that even households that are \u201cfunded or overfunded\u201d still reduce spending. That is, while some retiree households reduce their spending due to limited funds, even households who don\u2019t<\/em> need to reduce spending nonetheless typically do<\/em> still reduce spending over time.<\/p>\n

As Blanchett writes, \u201cOnly those respondents who were the most well-funded and spending at lower levels tended to increase in spending. Average real spending declined for all respondents spending $80,000 or more, regardless of funded status, although spending declines were lower as funded status tended to improve.\u201d<\/p>\n

Why People Reduce Spending<\/h3>\n

To me, it\u2019s not surprising at all to find that people reduce spending over their retirement, even when they aren\u2019t forced to do so.<\/p>\n

For example, imagine a world in which there was absolutely no uncertainty. You know exactly what your career earnings and investment returns will be. You know what inflation is going to be. You know exactly how long you (and your spouse, if applicable) will live. You know exactly what your health care costs (and other \u201clumpy\u201d costs such as home repairs) will be each year.<\/p>\n

And so you\u2019re left with some, definitively known, amount of discretionary spending, which you can allocate across the years of your life.<\/p>\n

In that world, how would you allocate those dollars, across time?<\/p>\n

There\u2019s no right or wrong answer here. But most people would choose to do more discretionary spending in their earlier years and less in their later years, simply because it\u2019s easier to enjoy discretionary spending at a younger age. At 25 it\u2019s easier to have a travel-the-world type of adventure than at 45. It\u2019s easier at 45 than at 65. And it\u2019s easier at 65 than at 85. And the same things goes for\u00a0most<\/em> types of discretionary spending. It\u2019s just easier to do it the younger we are.<\/p>\n

Some people might choose the classical economics \u201cconsumption smoothing\u201d idea of having your spending stay level over time. But it\u2019s hard to imagine many people intentionally choosing an increasing spending path all the way through life (e.g., pinching pennies at age 35 so that you can \u201clive large\u201d at age 85).<\/p>\n

Now let\u2019s bring back one type of uncertainty: lifespan. So we\u2019re still assuming no investment risk, no uncertainty as to health care costs or other big expenses. But now we don\u2019t<\/em> know how long you\u2019ll live. Naturally, that means we need to plan for a scenario where you live longer than your life expectancy, but there\u2019s another aspect here that is often left out. And that is: would you weight earlier years more heavily (i.e., choose to spend more in those years than in the above case) simply because you know you\u2019ll be alive in those years? In other words, separate from the decision you made above about year-by-year spending preferences, when we add longevity uncertainty into the mix, would you now choose to, for example, further<\/em> shift the spending in the direction of the earlier years, simply because you\u2019re more likely to be alive during those years?<\/p>\n

Again, different people will answer differently here. But this factor is either not important to you, or it\u2019s a point in favor of more spending in earlier years. Nobody would say, \u201cI\u2019m less likely to be alive at age 95 than at age 65, and therefore I will plan to allocate more dollars to spending at age 95 than at age 65.\u201d<\/p>\n

So we have two factors, both of which point in favor of weighting earlier spending more heavily than later spending (though to differing degrees from one person to another). For most households, that\u2019s broadly the goal<\/em> that we\u2019re trying to achieve.<\/p>\n

\u201cReducing spending throughout retirement\u201d might sound bad. (And indeed, being forced<\/em> to do so is probably not what we want.) But \u201cintentionally choosing to spend more in earlier retirement\u201d is another way of saying the same thing, and it is broadly something that people want<\/em> to do.<\/p>\n

What is the Best Age to Claim Social Security?<\/h3>\n

Read the answers to this question and several other Social Security questions in my latest book:<\/p>\n\n\n<\/colgroup>\n\n\n
\"\"<\/a><\/td>\nSocial Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less<\/strong><\/em>\n