Most Retirees Want to Front-Load Their Spending

In a survey of 2,000 defined contribution plan participants funded through the Granum Center for Economic Security at The American College of Financial Services, I provided participants with a choice of four spending options. They could choose to spend more early, spend the same dollar amount each year, maintain a constant amount of after-inflation spending or increase after-inflation spending gradually.

Thirty-eight percent of participants chose to spend the same dollar amount each year, and the second-most popular choice, at 28%, was spending even more early in retirement. Since inflation eats away at purchasing power, this means that two-thirds of respondents would prefer to front-load spending in retirement. Another 24% preferred to spend the same after-inflation (real) amount each year, and only 10% wanted to see their real spending rise.

That desire to spend more early means that such strategies as the constant real spending assumed by the 4% rule aren’t what most retirees want. Planning software that makes this assumption will result in a less enjoyable lifestyle in a client’s 60s and 70s when they can enjoy the money the most. However, spending freely early in retirement will also result in an increased probability of running out and leave fewer assets to manage.

Longevity and Healthspan

Retirement planning expert Art Prunier elected to spend more immediately after his retirement on activities such as bike trips in Europe because he believed that “by my current age (early 70s), I probably wouldn’t be able to continue taking active vacations.”

What predicts a desired spending path? The biggest predictor is the respondent’s expected longevity. Each participant was asked the likelihood that they would live to age 75, and while people generally underestimate their longevity, research shows that this projection is a surprisingly strong predictor of how long they actually live. Those who believe that they are more likely to live beyond 75 prefer spending more later in retirement, while — not surprisingly — those who think they have a lower probability of surviving past 75 want to live it up early in retirement.

At the same time, new research suggests that healthspan may be equally important as longevity. Moshe Milevsky has made the point that biological age, which is relatively easy to access on health tracking apps, has a big effect on how an individual should plan for spending in retirement. Healthier retirees will need to save more and spread their savings across more years of active spending.

The realization that healthspan might affect spending came to Prunier after a recent bicycle tour.

“Frankly, getting to know this group of older bicyclists shocked me and destroyed my personal expectations,” he notes. “Time spent involved with bicycling (or hiking or skiing or whatever) year-round is the ‘price of admission’ for the future ability to keep doing such activities.”

We’re all familiar with the age that we expected to be old not seeming that old when we reach it. This may be why older workers in the study preferred a path that resulted in greater spending later in life. Most 30-year-olds can’t imagine having much fun with their money at 80, while to those nearing retirement, 80 doesn’t seem all that old anymore. Women and those who use a financial advisor also prefer spending more later even after controlling for income, age and health beliefs.

Research shows that retirees do spend more in real (after-inflation) terms early in retirement. Retirement spending smile research from David Blanchett, PGIM’s head of retirement research, found that real spending falls gradually throughout retirement, but the decline is sharpest in the late 70s and early 80s before health expenses begin slowing the decline in advanced age.

Prunier has seen older, wealthier neighbors transition into a less active, less expensive lifestyle later in retirement.

“I anticipate no longer spending the large VRBO fees for winter rentals and trip expenses somewhere in our early 80s,” he says. “That's about $15,000 of spending saved in 2025 dollars. But organized bus tours might continue on into the mid-80s, or until we can't deal with the walking.”

Planning Implications

Spending more early increases the risk of having to cut back on spending later. A smaller portfolio is less able to grow when markets rise, which can increase the so-called sequence of investment risk. Retirees who get modest or negative investment returns early in retirement and withdraw a large amount to fund spending will have a tougher time maintaining a decent lifestyle into their 90s.

The popularity of a strategy that produces a constant nominal income may be related to a phenomenon known as the money illusion. It’s common to ignore the effects that inflation has on maintaining a lifestyle. As an example, a pension that provided $100,000 of spending power in 1966 fell to $27,000 of spending power over the next 20 years.

Constant nominal spending sounds intuitively appealing since it creates an easy mental budget, but it exposes retirees to a real spending path that is out of their control. Advisors need to help clients build an income and investment strategy that protects against the long-term lifestyle risk of inflation while also giving clients the ability to enjoy their savings during the go-go years of retirement.

While it can be tempting to believe that a desire to spend more early means that retirees should claim Social Security at age 62, the opposite is true. A retiree can live it up by spending taxable and traditional qualified savings and building a higher base of inflation-protected Social Security income that mitigates the risk of running out of savings. For a healthy retiree, or an unhealthy higher-earning married retiree with a healthy spouse, delayed claiming provides an inflation-protected lifestyle safety net.

There are also obvious issues for financial advisors to navigate. Helping clients build a plan that is aligned with their goal of spending more early reduces assets under management, which is a natural conflict of AUM compensation in retirement planning. An advisor might hesitate before recommending a strategy that increases the probability of cutting back on spending later in life and compromises an advisor’s ability to generate revenue. But, ultimately, a fiduciary should build a plan that allows clients to effectively meet their lifestyle and legacy goals, and foregone joy is the trade-off of an overly conservative spending plan.