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.
Episode Transcript
According to JP Morgan, the average retiree
spends about $57,000 per year.
Now that's for someone who'ssingle Couples are about $57,000
per year.
Now that's for someone who'ssingle couples are about 75,000
per year.
That's not what most of ourclients spend here, at root
financial.
However, I'm going to give yousome insight on how retirees
spend and why the numbers I justtold you aren't really what you
(00:38):
should plan on for your ownretirement.
And the main reason for that isbecause of what is called the
retirement smile.
Many of you are familiar withthis, but those who are not,
you're going to want to hearthis because this will change
your retirement.
So pretend that you are myclient and you come and you say,
ari, I'd love to spend $6,000 amonth.
I know you're a big soccer fanand you want me to buy Arsenal
FC for you, but I just don'thave the money.
(01:00):
$6,000 a month, that's so I canlive my dream retirement.
I'd say, okay, I'm a littlebummed because I thought you
were going to buy me my favoritesoccer team, but let's get on
with it.
I always try to keep it lightand somewhat funny.
Then we'll go on to have thatconversation of what they want
to spend and kids' college andnew cars and how often and all
that good stuff.
And then most of the time I'llsay, okay, pretend I'm going to
(01:22):
ask you to spend $6,000 a month,every month, for the rest of
your life.
Is that how you feel yourretirement will actually go Like
?
Is that what you think it'lllook like?
And they'll go?
No, probably spend a little bitmore 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, maybethat's going to change a little
(01:47):
bit from 65 to 75 or 80.
Maybe I'm going to do a fewdifferent things.
Maybe I'm traveling a littleless but spending more on
grandbaby time or whatever it is.
And then from 80 to 95, maybethat's more on medical expenses.
So I just want to make sure I'mplanning appropriately and I
assume it'll just average outand that's what a lot of clients
will say and I don't blame them.
And when you're playing aroundwith your own retirement
software planning, what you'lloften do is you'll pick a number
$6,000 a month after taxes,adjusted for inflation, $8,000 a
(02:12):
month.
There's a better way to do itand that's what's called the
retirement smile which says whenyou do retire, you will have
your energy and your health.
And what happens is you'regoing to spend more and we want
you to, because that's when youhave the ability to fully enjoy
it Then it's going to come downa little bit.
If you're thinking about asmile, it's coming down.
(02:34):
Now we're maybe at the bottomof the smile, right in the
center there, and that's maybelet's just call it age 75.
Never perfect, but age 75.
Now we're spending a little bitless.
Energy is not the same, but westill are, of course, enjoying
retirement.
And now we're 90 years old andit's coming back up again.
We're at the top of the smilebecause medical expenses are
coming up.
Or you've realized you'veunderspent and you've got enough
money that you want to givemore.
(02:54):
Or maybe you've overspent andyou've realized, hey, I really
enjoyed it, but now I don't havethe means to do what I want to
do as much, which I've seen aswell.
So I'm telling you all of thisbecause I don't want you to
marry a number, because it cancause you to work longer than
you need.
If you're planning on $8,000 amonth throughout retirement, for
example, that's about $96,000 ayear.
(03:16):
Let's call it $100,000, to keepit simple, that in the software
, and then assume that's thecase for your entire retirement,
because you'd actually be overprojecting your expenses.
So I went and asked Chachwiti.
I said, hey, what's the averageannual spending per retiree
based off of the go-go years,which are those initial years 65
(03:40):
to 75, traditionally whereyou're more active, travel,
hobbies, higher spending.
Then the slow-go years, that'sfrom 76 to 85, less travel,
moderate activity, stablespending, healthcare is on the
rise at that point and the no goyears, that's 86 and above, as
described in a study here,mostly home-based, lower
(04:01):
discretionary spending, higherhealthcare.
Of course these phases they'renot exact and many of you are
like, well, I'm prioritizing myhealth like crazy, so these
won't apply to me.
Great, then please ignore a lotof what I'm saying.
I hope you only take what'shelpful from these episodes.
But most of our clients.
So let me give you the studyone more time and I'll tell you
(04:21):
what most of our clients arespending.
So, according to BLS, jp Morganand 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 inyour go-go years, you're
(04:42):
spending about $625,000 overthat 10-year period, slow-go
$525,000, and no-go $425,000.
That's approximately for ahousehold, 1.5 to 1.7 across 30
years.
The housing is what remains thelargest expense across all the
phases.
Healthcare costs increases withage, which often doubles by the
(05:05):
no-go years, and thendiscretionary spending travel
and dining that it can drop by25 to 50% after go-go years.
Now there's a lot of differentthings that I'm going to get
into in a moment of withdrawalrates.
How much can you spend beingprepared for healthcare costs?
Fidelity projects thathealthcare costs for a couple
throughout retirement is$350,000.
(05:26):
Now that's just an estimate.
Here I'm going to tell you whatmost of our clients are spending
.
Most of our clients that arereaching out to work with Root
they have between it's reallyanywhere from one and a half to
three million.
That's the median.
Then the average is higher thanthat probably in that two and a
half to three and a half interms of assets, and that's
(05:48):
liquid assets, excluding theirhome.
So here are a lot of people whohave saved and invested really
well.
They're now at a stage of lifewhere they want to make sure
everything they've worked sohard for is truly optimized.
So they might be spending 150or 200,000 per year in those
first five or 10 years.
Then it's maybe coming downwhere it's in that 100, 150,000
(06:09):
per year.
Then it's coming up again,maybe that 150 to 250, when
they've realized, hey, we're ina comfortable spot with our
assets, that we can spend thisamount.
Now this which is a bigdisclaimer here is that
healthcare is a massive shiftthat you cannot try to plan for
to the nth degree.
And I've seen people try to doit and they drive themselves
crazy where they go.
(06:30):
I'm not going to spend too much.
I know I'm 55 and I'm feelinghealthy today, but I'm really
worried I'm going to run out ofmoney.
So what they do is they don'tspend.
And then what happens is nowyou're not fully enjoying your
retirement and then at whichwe've seen I can't tell you how
many times 62, 63, they eitherhave a significant health impact
, maybe they unfortunately passaway, or retirement just really
(06:54):
changes, because maybe they'reokay but they can't hike to the
degree they wanted to, ortraveling looks very different
because their spouse is nolonger with them, so they don't
have that interest to the samedegree.
And now you could have reallybeen enjoying your money and be
in a fine position for awonderful retirement.
That's what we want to avoid isunnecessarily not spending
(07:14):
money If you're not in aposition to financially do it.
That's a different story.
But we talk about withdrawalrates.
If you have $2 million andwe're using a 5% withdrawal rate
as an example, $100,000, that'sreasonable that you could be
spending.
Now it depends Is all $2 millionin a Roth IRA?
Well, for most of you, it's not.
Most of you have the majorityof your money in a pre-tax
(07:35):
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 awithdrawal rate.
That, for being conservative, Iwould start looking into and
you might find you're like well,that's great, but healthcare,
if I retire at 60, that's gonnacost me another 10,000 a year,
and I wanna travel and you justsaid that I should when I'm in
(07:57):
my good health and energy, and Iwant to, and I also have a home
remodel and I have kids thatare in college, and so what
happens is people have so manythings happening at the same
time that it creates a big risk,which is that you overspend in
the years where you don't havesocial security yet, where you
don't have another income sourcethat's there to help out, it's
all on your portfolio.
(08:17):
Maybe there's no inheritance orsocial security or rental
income or a pension, and sothat's a lot of pressure.
What you don't want to do ispressure your portfolio too much
too early Now.
With that being said, I am thehost of the early retirement
podcast, so I'm talking abouthow I can help you retire early.
So, when it comes to yourspending, what I would encourage
(08:37):
you to do and you can do this,of course, online with the
software that I use I actuallyoften recommend that you write
it down first and you just dreambig I mean as big as you can
dream and then you get realistic.
So, for example, I had someoneI did this recently and they
said, ari, okay, let's dream big, I'm at 5000 a month.
I said, okay, you said that youalso like soccer.
(08:58):
Would you go to the World Cupgames?
And they said, yeah, next year,that would be really fun.
It's coming to the US, so Iwant to start doing that.
I said, okay, would you spendmore on grandchildren?
And they're like, yes, but Idon't want to spoil them, I just
it would be cool to take a tripwith them.
So we're dreaming, dreaming,dreaming.
Then they're like, okay, nowmaybe it's 7,500, 8,000 a month
(09:18):
and they were at 5,000 a monthat the beginning.
So we just increased that by3,000 a month or 36,000 for the
year, and they're in a fine spotto do that.
I said if you wanted to do thatevery single year, we would run
the risk of running out of moneybecause you can't spend.
You know they want to spend60,000 and they'd be fine, Life
would be okay.
But if they want to really livethe full life, they want to
(09:41):
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 inthat 70, 80,000, assuming
markets are still performing ina way that we have projected
based off that case and thenexpenses will have to tear down.
On the flip side, what theycould do is say I don't want to
(10:01):
ever have to worry.
If I want to spend 90,000 everyyear for the rest of my life, I
would rather just work threemore years.
Awesome, that's a trade-off.
Retirement is about trade-offs.
Many of you want to retire.
You're just over your job.
You don't want to workpart-time, you're ready.
Awesome.
If that's, you go for it.
Just make sure you're doing itin a way that's going to make it
(10:21):
so when you retire you don'thave that little thing in the
back of your head that's nagginggoing.
Should I have worked anotheryear or six months or two years,
so I could really have spentwhat I wanted to for the rest of
my life?
I talk about appetizer planninga lot.
How do you make sure you retirewithout worrying about if you
want to get that appetizer, oryou're loving your trip, that
you can extend it withoutworrying about does that mean my
(10:42):
Monte Carlo simulation is goingto be off?
So go dream big and berealistic.
I want to make sure that you'recertainly looking at this in a
light that is rational.
I'll see people who go I don'twant to plan on inheritance at
all and I'll say, great, that'sa really safe place to start
because you don't want to relyon that.
And then I'll ask morequestions and they'll say, yeah,
it's probably coming next yearand they've already shared it
(11:03):
with me.
Okay, well, if that's the case,let's maybe not rely on it, but
we could still plan on if itdoes come.
Maybe it's even a smallernumber than you think.
What would that change to yourplan?
There's other people who reallyjust resonate with the idea of
saying I just will rather worklonger, so if markets don't do
well, I don't care.
I'm like ultra protective.
(11:24):
I just want to make sure, evenif I get 3% or 4% growth,
because returns don't do whatthey've done in the past, I'm
going to sleep better at night.
Awesome.
It might mean you're workinguntil 70, but if that's what you
prefer, there's nothing wrongwith that.
So I encourage you to chooseyour own path.
Get realistic here, and that'swhat I want to share in this
episode.
So some interesting stats thereof averages of what people are
(11:47):
really spending 57,000 single,$75,000 for couples as an
average.
But, like I said, we havecouples here that are spending
$250,000, $300,000 per year andcouples and singles that spend
literally I've one couple thatthey spend $3,000 a month.
Their home is paid off, they'retravelers, they love being in
their RV and that's just whatgives them fulfillment.
(12:08):
So nothing wrong either way.
Just want to make sure you'reliving your dream retirement.
If you like this video, pleasedo literally like this on
YouTube If you're watchingexcuse me if you're listening on
the podcast app, there's nolike button, but I ask that you
leave a review if you have foundthe show helpful.
And then, finally, if you'relooking to work with an advisor,
so you can spend your time onwhat matters most with who
(12:29):
matters most to you.
That's what we spend our timedoing here at Root is we want to
make sure we're insuringeverything.
I know I just did a doublethere.
We're making sure and insuring,so my high school English
teacher would not have beenproud of that moment.
But we want to make sure thatyou're not having to spend your
time doing those things, butthat you do have a partner.
(12:49):
So it's not us saying, okay, goretire, it's time.
It's us saying how would youfeel if we told you you're in a
position to retire now?
And if you were, are youwilling to make these changes
over time?
You're still the CEO.
We're just the CFO who's hereto optimize it all.
So truly root financialpartners, because we are a
partnership.
That's it for this episode.
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