Why Your Retirement Budget Isn’t Set in Stone – And What That Means for Your Portfolio
Provided by our friends at Clover Leaf Financial, LLC
One of the most important (and most overlooked) parts of retirement planning is this: Your spending will change – sometimes dramatically – throughout retirement.
Understanding how, when, and why this shift happens can impact everything from how much you need to save to how you should invest your portfolio. Let’s break down what the research (and real retirees) are telling us—and what it means for your retirement strategy.
Your Spending Won’t Rise Evenly with Inflation
It’s common to assume that if you need $100,000 today, you’ll need $103,000 next year, then $106,000 the year after—thanks to inflation. But this isn’t always how it plays out in retirement.
Many retirees, especially homeowners, don’t see all their expenses increase in lockstep with inflation. Housing costs like mortgage payments often disappear, and things like travel, dining out, or even groceries can be adjusted.
Yes, prices rise over time – but retirees tend to spend less as they age, which offsets that inflation.
The Retirement Spending Smile
One of the most widely referenced models for retirement behavior is the “retirement spending smile”:
- Go-Go Years (60s to early 70s): Spending often rises due to travel, hobbies, and health.
- Slow-Go Years (mid–late 70s to 80s): Activity slows, and so does spending.
- No-Go Years (late 80s–90s+): Travel and lifestyle spending drop significantly, while healthcare becomes a bigger piece of the pie.
Research shows real (inflation-adjusted) spending drops by roughly 25% by age 84. This means retirees are often spending less—not more—even as inflation ticks upward.
Why This Matters for Your Retirement Plan
If you model your plan assuming expenses will rise by 3% every year, you might drastically overestimate what you actually need. On the flip side, acknowledging this spending pattern can:
- Increase your probability of retirement success
- Reduce how much you need to save
- Give you permission to spend more freely early on
- Help guide your withdrawal strategy from your portfolio
Investment Implications: Don’t Go Too Conservative
A big mistake retirees make is getting overly conservative just because they’ve stopped working. But if your retirement could last 30+ years, you still need growth to preserve purchasing power.
A rule of thumb: keep at least a portion of your portfolio in equities (depending on your risk tolerance and income sources). Stocks provide the growth engine to offset inflation. Bonds and cash are there to provide short-term stability.
A Smarter Withdrawal Strategy
Your withdrawal rate doesn’t need to be static. It can (and should) flex with your needs:
- In your early years, it might be OK to take 6–7% annually—especially if Social Security hasn’t kicked in yet.
- Once guaranteed income streams like Social Security start, your withdrawal rate may drop significantly.
- Build a cash buffer (2–5 years of expenses) to avoid selling stocks during down markets.
This “bucket” strategy allows you to stay invested for growth, while preserving a short-term safety net.
The Big Picture
Everyone’s retirement looks different. Some clients want to travel extensively early on, while others plan for more conservative lifestyles. Some have pensions or rental income; others rely entirely on portfolio withdrawals.
That’s why your plan shouldn’t be based on general rules—it should be tailored to how your spending will actually change over time.
Final Thought
Don’t be afraid to spend what you’ve worked hard to save. Retirement is about living – not just preserving every dollar.
If you’d like to explore what your spending curve looks like—and how your portfolio should support it—we’re here to help.
Schedule a complimentary consultation with Clover Leaf Financial LLC today
Let’s build a plan that matches your real life – not just the math.