7 New Insights on What Retirement Spending Really Looks Like

Retirees commonly experience both increases and decreases in spending during their retirement years, and their spending across different categories also varies significantly over time.

As explored in a new spending analysis published by T. Rowe Price, advisors can do a lot of good for their clients by helping them prepare for such volatility in spending. Doing so helps clients achieve greater peace of mind while boosting their odds of success in retirement.

“While data have shown that spending generally decreases in retirement, the reality is that many retirees experience meaningful ups and downs in their spending over time versus a continuous decline,” the report explains.

According to the report, these fluctuations in spending have significant implications for potential retirement income solutions — particularly in determining factors such as the optimal liquidity and accessibility characteristics and the level of equity exposure.

As the report explores, on average, about one in four retirees experienced at least a 17% to 20% increase in annual spending over a two‑year period, while another one in four experienced at least a 20% to 21% decrease in annual spending over a similar period.

“Based on our analysis, there is a considerable risk of experiencing large increases in spending at some point in retirement,” the report warns.

Notably, slightly more than half of retirees experienced a spending increase of 0% to 25% between ages 65 and 90, while some one in five households experienced spending increases between 50% and 100% during retirement.

“Given the range of possible variations in spending increases, the amount of liquid assets retirees should hold in their portfolios to address any potential shortfall will vary,” the report concludes. “Generally, it will depend on personal factors such as income, expected expenses, health status, family situation, risk preference, etc.”

See the slide deck for seven key spending volatility insights drawn from the new T. Rowe Price repot. As the authors emphasize, no amount of planning can prevent the unexpected, but it can make navigating the twists and turns far easier and less emotionally fraught.