Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

This Is What The Average Retiree Spends In Retirement

• Ari Taublieb, CFP®, MBA • Episode 276

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Are you working longer than you need to because of a retirement planning mistake? One of the biggest misconceptions is assuming you will spend the same amount every year in retirement. The reality is different, and understanding it could change when you retire.

Experts call it the retirement smile. In your “go-go years” (65–75), spending is highest. Travel, hobbies, and experiences often run $60,000 to $65,000 a year for the average household. In the “slow-go years” (76–85), spending usually drops to $50,000 to $55,000 as travel slows down. Then come the “no-go years” (86+), where overall expenses dip but healthcare costs rise, creating the curve that completes the smile.

At Root Financial, many of our clients with $1.5 to $3.5 million in assets might spend $150,000 to $200,000 early on, adjust to $100,000 to $150,000 mid-retirement, and later see healthcare push costs back up to $150,000 to $250,000. The lesson is clear. Planning with a flat budget often means you are overestimating your needs, delaying retirement, or underspending when you could be living more fully. A flexible withdrawal approach, starting around 5 percent, creates freedom while protecting long-term security.

Do not let financial fear rob you of retirement joy. Whether it is traveling to the World Cup or simply extending family vacations, understanding your retirement smile can help you step into retirement with confidence and peace of mind.

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 0:

According to JP Morgan, the average retiree spends about $57,000 per year. Now that's for someone who's single Couples are about $57,000 per year. Now that's for someone who's single couples are about 75,000 per year. That's not what most of our clients spend here, at root financial. However, I'm going to give you some insight on how retirees spend and why the numbers I just told you aren't really what you should plan on for your own retirement. And the main reason for that is because of what is called the retirement smile.

Speaker 0:

Many of you are familiar with this, but those who are not, you're going to want to hear this because this will change your retirement. So pretend that you are my client and you come and you say, ari, I'd love to spend $6,000 a month. I know you're a big soccer fan and you want me to buy Arsenal FC for you, but I just don't have the money. $6,000 a month, that's so I can live my dream retirement. I'd say, okay, I'm a little bummed because I thought you were going to buy me my favorite soccer team, but let's get on with it. I always try to keep it light and somewhat funny. Then we'll go on to have that conversation of what they want to spend and kids' college and new cars and how often and all that good stuff. And then most of the time I'll say, okay, pretend I'm going to ask you to spend $6,000 a month, every month, for the rest of your life. Is that how you feel your retirement will actually go Like? Is that what you think it'll look like? And they'll go? No, probably spend a little bit more at the beginning, because if I retire at like, let's say, 55, I'm going to have more of my energy and my health. And then at maybe 65, maybe that's going to change a little bit from 65 to 75 or 80. Maybe I'm going to do a few different things. Maybe I'm traveling a little less but spending more on grandbaby time or whatever it is. And then from 80 to 95, maybe that's more on medical expenses. So I just want to make sure I'm planning appropriately and I assume it'll just average out and that's what a lot of clients will say and I don't blame them. And when you're playing around with your own retirement software planning, what you'll often do is you'll pick a number $6,000 a month after taxes, adjusted for inflation, $8,000 a month.

Speaker 0:

There's a better way to do it and that's what's called the retirement smile which says when you do retire, you will have your energy and your health. And what happens is you're going to spend more and we want you to, because that's when you have the ability to fully enjoy it Then it's going to come down a little bit. If you're thinking about a smile, it's coming down. Now we're maybe at the bottom of the smile, right in the center there, and that's maybe let's just call it age 75. Never perfect, but age 75. Now we're spending a little bit less. Energy is not the same, but we still are, of course, enjoying retirement. And now we're 90 years old and it's coming back up again. We're at the top of the smile because medical expenses are coming up.

Speaker 0:

Or you've realized you've underspent and you've got enough money that you want to give more. Or maybe you've overspent and you've realized, hey, I really enjoyed it, but now I don't have the means to do what I want to do as much, which I've seen as well. So I'm telling you all of this because I don't want you to marry a number, because it can cause you to work longer than you need. If you're planning on $8,000 a month throughout retirement, for example, that's about $96,000 a year. Let's call it $100,000, to keep it simple, that in the software, and then assume that's the case for your entire retirement, because you'd actually be over projecting your expenses.

Speaker 0:

So I went and asked Chachwiti. I said, hey, what's the average annual spending per retiree based off of the go-go years, which are those initial years 65 to 75, traditionally where you're more active, travel, hobbies, higher spending. Then the slow-go years, that's from 76 to 85, less travel, moderate activity, stable spending, healthcare is on the rise at that point and the no go years, that's 86 and above, as described in a study here, mostly home-based, lower discretionary spending, higher healthcare. Of course these phases they're not exact and many of you are like, well, I'm prioritizing my health like crazy, so these won't apply to me. Great, then please ignore a lot of what I'm saying. I hope you only take what's helpful from these episodes. But most of our clients. So let me give you the study one more time and I'll tell you what most of our clients are spending.

Speaker 0:

So, according to BLS, jp Morgan and EBRI, the analysis says the go-go years are in the range of $60,000 to $65,000 per year, the slow go is $50,000 to $55,000, and the no-go is $40,000 to $45,000. Otherwise said, if you are in your go-go years, you're spending about $625,000 over that 10-year period, slow-go $525,000, and no-go $425,000. That's approximately for a household, 1.5 to 1.7 across 30 years. The housing is what remains the largest expense across all the phases. Healthcare costs increases with age, which often doubles by the no-go years, and then discretionary spending travel and dining that it can drop by 25 to 50% after go-go years. Now there's a lot of different things that I'm going to get into in a moment of withdrawal rates. How much can you spend being prepared for healthcare costs? Fidelity projects that healthcare costs for a couple throughout retirement is $350,000. Now that's just an estimate.

Speaker 0:

Here I'm going to tell you what most of our clients are spending. Most of our clients that are reaching out to work with Root they have between it's really anywhere from one and a half to three million. That's the median. Then the average is higher than that probably in that two and a half to three and a half in terms of assets, and that's liquid assets, excluding their home. So here are a lot of people who have saved and invested really well. They're now at a stage of life where they want to make sure everything they've worked so hard for is truly optimized. So they might be spending 150 or 200,000 per year in those first five or 10 years. Then it's maybe coming down where it's in that 100, 150,000 per year. Then it's coming up again, maybe that 150 to 250, when they've realized, hey, we're in a comfortable spot with our assets, that we can spend this amount.

Speaker 0:

Now this which is a big disclaimer here is that healthcare is a massive shift that you cannot try to plan for to the nth degree. And I've seen people try to do it and they drive themselves crazy where they go. I'm not going to spend too much. I know I'm 55 and I'm feeling healthy today, but I'm really worried I'm going to run out of money. So what they do is they don't spend.

Speaker 0:

And then what happens is now you're not fully enjoying your retirement and then at which we've seen I can't tell you how many times 62, 63, they either have a significant health impact, maybe they unfortunately pass away, or retirement just really changes, because maybe they're okay but they can't hike to the degree they wanted to, or traveling looks very different because their spouse is no longer with them, so they don't have that interest to the same degree. And now you could have really been enjoying your money and be in a fine position for a wonderful retirement. That's what we want to avoid is unnecessarily not spending money If you're not in a position to financially do it. That's a different story. But we talk about withdrawal rates. If you have $2 million and we're using a 5% withdrawal rate as an example, $100,000, that's reasonable that you could be spending.

Speaker 0:

Now it depends Is all $2 million in a Roth IRA? Well, for most of you, it's not. Most of you have the majority of your money in a pre-tax account like a 401k or an IRA, and so if that's you, you're wondering how much can I spend? 5% is a starting spot of a withdrawal rate. That, for being conservative, I would start looking into and you might find you're like well, that's great, but healthcare, if I retire at 60, that's gonna cost me another 10,000 a year, and I wanna travel and you just said that I should when I'm in my good health and energy, and I want to, and I also have a home remodel and I have kids that are in college, and so what happens is people have so many things happening at the same time that it creates a big risk, which is that you overspend in the years where you don't have social security yet, where you don't have another income source that's there to help out, it's all on your portfolio. Maybe there's no inheritance or social security or rental income or a pension, and so that's a lot of pressure. What you don't want to do is pressure your portfolio too much too early Now. With that being said, I am the host of the early retirement podcast, so I'm talking about how I can help you retire early.

Speaker 0:

So, when it comes to your spending, what I would encourage you to do and you can do this, of course, online with the software that I use I actually often recommend that you write it down first and you just dream big I mean as big as you can dream and then you get realistic. So, for example, I had someone I did this recently and they said, ari, okay, let's dream big, I'm at 5000 a month. I said, okay, you said that you also like soccer. Would you go to the World Cup games? And they said, yeah, next year, that would be really fun. It's coming to the US, so I want to start doing that. I said, okay, would you spend more on grandchildren? And they're like, yes, but I don't want to spoil them, I just it would be cool to take a trip with them. So we're dreaming, dreaming, dreaming. Then they're like, okay, now maybe it's 7,500, 8,000 a month and they were at 5,000 a month at the beginning. So we just increased that by 3,000 a month or 36,000 for the year, and they're in a fine spot to do that.

Speaker 0:

I said if you wanted to do that every single year, we would run the risk of running out of money because you can't spend. You know they want to spend 60,000 and they'd be fine, Life would be okay. But if they want to really live the full life, they want to spend closer to 90,000. So if they're at that 90, 100,000, they could comfortably do that for the first three, four years. Then they could still be in that 70, 80,000, assuming markets are still performing in a way that we have projected based off that case and then expenses will have to tear down. On the flip side, what they could do is say I don't want to ever have to worry. If I want to spend 90,000 every year for the rest of my life, I would rather just work three more years. Awesome, that's a trade-off.

Speaker 0:

Retirement is about trade-offs. Many of you want to retire. You're just over your job. You don't want to work part-time, you're ready. Awesome. If that's, you go for it. Just make sure you're doing it in a way that's going to make it so when you retire you don't have that little thing in the back of your head that's nagging going. Should I have worked another year or six months or two years, so I could really have spent what I wanted to for the rest of my life?

Speaker 0:

I talk about appetizer planning a lot. How do you make sure you retire without worrying about if you want to get that appetizer, or you're loving your trip, that you can extend it without worrying about does that mean my Monte Carlo simulation is going to be off? So go dream big and be realistic. I want to make sure that you're certainly looking at this in a light that is rational. I'll see people who go I don't want to plan on inheritance at all and I'll say, great, that's a really safe place to start because you don't want to rely on that. And then I'll ask more questions and they'll say, yeah, it's probably coming next year and they've already shared it with me. Okay, well, if that's the case, let's maybe not rely on it, but we could still plan on if it does come. Maybe it's even a smaller number than you think. What would that change to your plan?

Speaker 0:

There's other people who really just resonate with the idea of saying I just will rather work longer, so if markets don't do well, I don't care. I'm like ultra protective. I just want to make sure, even if I get 3% or 4% growth, because returns don't do what they've done in the past, I'm going to sleep better at night. Awesome. It might mean you're working until 70, but if that's what you prefer, there's nothing wrong with that. So I encourage you to choose your own path.

Speaker 0:

Get realistic here, and that's what I want to share in this episode. So some interesting stats there of averages of what people are really spending 57,000 single, $75,000 for couples as an average. But, like I said, we have couples here that are spending $250,000, $300,000 per year and couples and singles that spend literally I've one couple that they spend $3,000 a month. Their home is paid off, they're travelers, they love being in their RV and that's just what gives them fulfillment. So nothing wrong either way. Just want to make sure you're living your dream retirement. If you like this video, please do literally like this on YouTube If you're watching excuse me if you're listening on the podcast app, there's no like button, but I ask that you leave a review if you have found the show helpful.

Speaker 0:

And then, finally, if you're looking to work with an advisor, so you can spend your time on what matters most with who matters most to you. That's what we spend our time doing here at Root is we want to make sure we're insuring everything. I know I just did a double there. We're making sure and insuring, so my high school English teacher would not have been proud of that moment. But we want to make sure that you're not having to spend your time doing those things, but that you do have a partner. So it's not us saying, okay, go retire, it's time. It's us saying how would you feel if we told you you're in a position to retire now? And if you were, are you willing to make these changes over time? You're still the CEO. We're just the CFO who's here to optimize it all. So truly root financial partners, because we are a partnership. That's it for this episode.