What Is the Retirement Spending Smile?
In plain English
The retirement spending smile is a spending pattern observed in retirees where expenses start relatively high in early retirement (active lifestyle), decline during the quieter middle years, and then rise again in late retirement due to increasing healthcare and long-term care costs, creating a U-shaped or "smile" curve.
Why Does Retirement Spending Follow a Smile Pattern?
In early retirement (60s-early 70s), retirees are active — they travel, dine out, and pursue hobbies, driving higher discretionary spending. During the middle phase (mid 70s-early 80s), activity naturally slows and spending decreases. In late retirement (80s+), medical expenses, prescription costs, and potential long-term care needs push spending back up.
How Does the Spending Smile Affect Retirement Planning?
Traditional planning assumes constant inflation-adjusted spending, but the smile pattern suggests this overstates mid-retirement needs and understates late-retirement healthcare costs. Accounting for the smile can mean you need less total savings than flat-spending models suggest, but more dedicated healthcare funding through HSAs or long-term care insurance.
Should You Plan for the Spending Smile?
Incorporating the spending smile into your retirement calculator projections provides a more realistic picture. Budget higher discretionary spending early, reduce in the middle years, and earmark funds for longevity risk and healthcare. This approach can actually reduce anxiety about whether your savings will last.
Frequently asked questions
Does the spending smile apply to everyone?
The pattern fits many retirees but is not universal. Health status, lifestyle preferences, and whether you have long-term care insurance all affect individual spending curves. Use the smile as a planning framework and adjust based on your personal circumstances.
How does inflation affect the spending smile?
General inflation affects all phases, but healthcare inflation typically runs 2-3x faster than overall CPI. This amplifies the upward curve in late retirement. Planning for higher healthcare inflation rates in your later years produces a more accurate projection.
Keep exploring
Related terms
Retirement Income
Retirement income is the money you receive during retirement from sources such as Social Security, pensions, investment withdrawals, and part-time work.
Longevity Risk
Longevity risk is the chance that you will outlive your retirement savings, making it one of the most significant financial risks retirees face.
Safe Withdrawal Rate
The safe withdrawal rate is the percentage of your retirement portfolio you can spend each year without running out of money over a typical retirement period.
Health Savings Account (HSA)
An HSA is a triple-tax-advantaged account for healthcare expenses that can also serve as a powerful supplemental retirement savings vehicle.
Retirement Calculator
A retirement calculator is a tool that projects whether your savings will be sufficient for retirement by modeling your income, savings rate, investment growth, and retirement expenses.