Most retirement conversations revolve around two questions: how much to save and when to stop working. What happens after that tends to get treated as a single, steady line of expenses that gently fades as the years pass. That mental picture is almost entirely wrong.
There’s a pervasive assumption buried in nearly every retirement calculator: that you’ll spend roughly the same amount every year. It’s a convenient assumption. It makes the math simple. Yet it’s completely disconnected from how actual retirees spend money. The truth is that retirement unfolds in phases, and the one most people fail to plan for properly can catch them completely off guard.
Retirement Is Not a Flat Line – It's a Smile
Retirement Is Not a Flat Line – It's a Smile (Image Credits: Pexels)
Economists studying household spending have found that retirement expenses often form a curve known as the retirement spending smile. Spending begins relatively high in early retirement, declines during the middle years, and rises again later in life. This pattern is surprisingly consistent across income levels and lifestyles.
In 2013, David Blanchett wrote a paper titled "Estimating the True Cost of Retirement." In that paper, he found that retiree expenditures do not, on average, increase each year by inflation. He went on to suggest that there appears to be a "retirement spending smile," as expenditures decrease in real terms for retirees throughout retirement and then increase toward the end of their lives to deal with healthcare costs. That final upturn is precisely what trips people up.
The Go-Go Years: Active, Energetic, and Expensive
The Go-Go Years: Active, Energetic, and Expensive (Image Credits: Pexels)
The go-go years typically span the first decade of retirement, roughly ages 65 to 75, when health is good and energy is high. These are the years many retirees dream about during planning sessions – the time for that European river cruise, the cross-country RV trip, or perfecting a golf swing with regular rounds. During these years, you're likely to spend more than you initially expected. This isn't a planning failure; it's the natural expression of newfound freedom.
Research from T. Rowe Price shows spending during this phase typically runs 20 to 30 percent higher than during later phases. Yet most retirement calculators assume flat spending, potentially restricting these prime years unnecessarily. While the go-go years may start with an increase in living expenses for some retirees, they tend to decrease by about one percent per year over this phase of retirement.
The Slow-Go Years: The Stage Americans Most Often Miss
The Slow-Go Years: The Stage Americans Most Often Miss (Image Credits: Unsplash)
The slow-go years often begin as people approach their mid to late 70s or early 80s. This is the time when most people start to slow down, either because of health reasons or general aging. Exactly when this happens and to what degree varies. During this period, people often begin to experience health limitations or challenges that require adjustments to routines. This can result in taking fewer trips or engaging in less active adventures.
This phase doesn't result from financial constraints but rather from changing preferences and energy levels. The natural spending decrease during these years often exceeds 20 percent from peak go-go levels, even without conscious budget adjustments. Ironically, this is the stage that most retirement plans either rush past or simply fold into a flat average – yet it represents a genuine financial opportunity if understood correctly.
Why the Slow-Go Years Are Chronically Underestimated
Why the Slow-Go Years Are Chronically Underestimated (Image Credits: Unsplash)
Assessment of spending rates is often overlooked in planning. Failure to align spending rates with changing goals can lead to decisions that don't align with your financial reality. Many retirees continue drawing from their portfolios at the same rate during the slow-go years as they did earlier, simply because no one told them they could pull back.
When retirees were asked to rate their consumption philosophy on a scale of one to ten, with one representing a savings mindset and ten a spending mindset, roughly 38 percent rated themselves as having a savings mindset. On the other end of the spectrum, just 11 percent said they had a spending mindset. This reluctance to spend freely, even when circumstances allow it, is one of the central tensions in modern retirement planning.
The No-Go Years: When Healthcare Takes Over
The No-Go Years: When Healthcare Takes Over (Image Credits: Pexels)
The no-go years typically begin at age 80 and older. This stage represents the biggest slowdown of any previous stage and is heavily dependent on overall health. Financially, the no-go years drastically slow down spending around travel or recreation, but increase expenses for healthcare as doctor visits, prescriptions, and other health-related activities become more frequent.
Long-term care, including nursing homes, assisted living, and extended in-home support, is often the single largest uncovered expense in retirement. Nearly 70 percent of retirees will require some form of long-term assistance, but Medicare covers very little of the cost. Annual expenses for assisted living average more than $70,000, while a private room in a skilled-nursing facility can exceed $110,000 a year.
The Healthcare Cost Surge That Blindsides Retirees
The Healthcare Cost Surge That Blindsides Retirees (Image Credits: Unsplash)
The average 65-year-old retiring in 2025 can expect to spend about $172,500 on healthcare and medical expenses during retirement, not including potentially catastrophic long-term care costs, according to an annual survey by Fidelity. That number alone tends to shock people. Add long-term care and the figure climbs sharply higher.
Nearly two-thirds of pre-retired investors are underestimating their expected healthcare expenses in retirement. Only 27 percent of investors believe they will require long-term care, yet 70 percent of individuals turning 65 are likely to need this type of care. From 2000 to June 2024, medical care prices increased 121.3 percent, compared with an 86.1 percent rise in all goods and services, according to Consumer Price Index data.
How Spending Shocks Threaten the Middle and Late Phases
How Spending Shocks Threaten the Middle and Late Phases (Image Credits: Unsplash)
Although they get less attention than market shocks, spending shocks can also curb a retirement portfolio's longevity. Research has examined the implications of two major types of spending shocks: unanticipated early retirement and uninsured long-term care expenses at the end of life. The latter can translate into an effective "balloon payment" toward the end of life.
More retirees, about 31 percent, said their spending is much higher or a little higher than they can afford in 2024, up from 27 percent in 2022 and 17 percent in 2020. Given their economic circumstances during retirement, roughly half of retirees said they saved less than what was needed. One in three said they saved the right amount. The data paints a clear picture: underestimating spending needs in later phases creates real financial stress.
The Reality Gap Between What People Expect and What They Experience
The Reality Gap Between What People Expect and What They Experience (Image Credits: Unsplash)
Ideas about how much money is "enough" for retirement often shift once people actually retire. According to a 2024 EBRI survey, nearly half of workers think they'll need more than $1 million to retire comfortably. However, only 12 percent of retired people feel the same. One third of those already retired say they need less than $500,000 to cover their expenses, showing that retirement spending often looks different than expected.
Recent U.S. Census Bureau income data shows that households with a householder age 65 or older had a median household income of $56,680 in 2024. On the spending side, Bureau of Labor Statistics consumer expenditure data shows average annual expenditures of $61,432 for households age 65 and older in 2024. That gap is one reason retirement can feel tight even when a household is technically above the median income level.
Why the Standard 80 Percent Rule Doesn't Hold Up
Why the Standard 80 Percent Rule Doesn't Hold Up (Image Credits: Pexels)
For retirement planning, using the old income replacement ratio of 80 percent doesn't capture the nuance of how retirees actually spend money. In fact, this may drastically underestimate someone's true income needs. The three-phase reality demands something far more dynamic than a single, fixed percentage applied across decades.
For retirement planning, using the old income replacement ratio of 80 percent doesn't capture the nuance of how retirees actually spend money. In fact, this may drastically underestimate someone's true income needs. Understanding the three phases of retirement can allow us to plan with more confidence. Personal finance is personal, and rules of thumb or generic retirement calculators do not often account for a real-world retirement. A static withdrawal guideline may be helpful as a starting point, but it falls short when dealing with the evolving aspirations and needs of actual retirees.
Planning Around All Three Phases: What Actually Works
Planning Around All Three Phases: What Actually Works (Image Credits: Unsplash)
Identifying bucket-list items that require physical capability or significant travel is one practical step, as those experiences should be planned for during go-go years rather than "someday." Building in flexibility, rather than rigid withdrawal rules, and adopting strategies that allow higher early spending while preserving the ability to reduce if markets struggle, is equally important. Planning for healthcare uncertainty, particularly the no-go phase's greatest spending unknowns, through long-term care insurance, health savings accounts, and adequate portfolio reserves, can help manage this risk.
Fidelity's research finds that just 23 percent of Americans are contributing to an HSA to prepare for healthcare costs in retirement, and only three in ten are investing their HSA assets. Pre-retirees could benefit from HSA education, as only 15 percent of those ages 55 to 64 are enrolled in a health savings account. Among them, over half do not know that an HSA could be utilized as a retirement savings vehicle.
The Bigger Picture: Retirement as a Journey, Not a Number
The Bigger Picture: Retirement as a Journey, Not a Number (Image Credits: Pexels)
Retirement isn't one single budget that stays the same for 20 to 30-plus years. For many retirees, spending changes in phases because health, energy, and lifestyle naturally evolve over time. Roughly two thirds of retirement plan participants note it's difficult to know how their retirement savings will translate into monthly retirement income, and the same number worry about outliving their retirement savings.
Research tracking retirees over time shows spending velocity decreasing roughly one to two percent per year in real terms after age 70, accelerating to three to four percent after age 80, even among healthy retirees. Knowing that pattern exists is the starting point. Building a plan around it – rather than against it – is what separates people who feel financially secure throughout retirement from those who don't. The slow-go years aren't a footnote. For many Americans, they turn out to be the longest chapter of all.