Age Banding in Retirement: How Spending Patterns Shift and What That Means for Your Nest Egg
What You Will Learn
In this post, we’ll explore how retiree spending changes over time and why assuming a "fixed" income need throughout retirement could lead to over-saving. We’ll also show how adopting an age-banding approach can lead to more accurate retirement planning. If you want to avoid the anxiety of "do I have enough?" and plan smarter instead of harder, this is for you.
Why Listen to Me?
As someone who works daily with investors approaching retirement, I’ve found that most people drastically overestimate their future spending needs. I help clients avoid unnecessary sacrifices today by planning more accurately for tomorrow. The insights I share come from my work with retirees, extensive research, and evidence-based strategies that are SEC-friendly and built to stand the test of time.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Key Summary Points
Retirement spending tends to decline in real (inflation-adjusted) terms over time.
Retirees transition through three distinct spending phases: Go-Go, Slow-Go, and No-Go years.
Planning with "age bands" can reduce the required nest egg and make retirement more accessible.
Spending composition also changes over time — discretionary expenses fall more than healthcare costs rise.
What Are the 3 Phases of Retirement?
1. The Go-Go Years (Ages ~60s to Early 70s)
This is the "active" phase of retirement. Think travel, hobbies, family adventures.
Highest discretionary spending (travel, dining, entertainment)
Health care expenses are relatively modest
Most similar to pre-retirement lifestyle
2. The Slow-Go Years (Mid-70s to Early 80s)
Energy dips, health begins to matter more, and priorities shift.
Travel slows down, discretionary spending starts to decrease
Health care begins to increase modestly
Still independent, but more cautious with finances
3. The No-Go Years (Mid-80s and Beyond)
This phase is about simplicity and safety.
Travel and entertainment spending drops significantly
Health care takes a bigger chunk of the budget
Potential for long-term care needs
Data-Driven Spending Decline: What Research Says
The Retirement Spending Smile
According to David Blanchett’s research, spending doesn't just drop — it follows a "smile-shaped" curve:
Declines ~1% annually in the early years
Drops faster (~2% annually) in the middle years
Levels off or slightly drops in the final phase
Spending Drops Are Consistent Across Studies
Bernicke (2005) found spending fell by 15% every 5 years in retirement.
Center for Retirement Research confirmed an average decline of 1% per year.
JP Morgan found even affluent retirees spend less over time.
Bottom Line: Projecting constant spending over a 30-year retirement is outdated and likely too conservative.
Category-Specific Trends
Decreasing Categories
Transportation: fewer cars, less driving
Housing: downsizing, fewer repairs
Entertainment: less travel, fewer events
Insurance: life/disability coverage tapers off
Increasing Categories
Health Care: rises with age, but Medicare keeps it manageable
Long-Term Care: potential expense spike, but not universal
Net effect: Overall spending still decreases, even with rising medical costs.
How to Use Age Banding in Planning
Method 1 - Flat % Reduction by Decade
Cut spending by 10% every 10 years
OR: Cut 10% at 70, 15-20% at 80, and another 10% at 90
Method 2 - Annual Decline Approach
Reduce spending growth by 1% less than inflation annually
Example: if inflation is 3%, use a 2% spending growth rate
Method 3 - Category-Based Adjustments
Break spending into categories:
Essentials: -10%/decade
Leisure: -20%/decade
Healthcare: +10%/decade (with 5% inflation assumption)
Taxes: Adjust based on income plan
Real-Life Implications for Investors
You may not need a $2M nest egg to retire.
Planning with dynamic spending allows earlier and more confident retirement.
Tailoring your plan to actual behavior makes it more effective and more realistic.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQs
Q: Doesn’t health care ruin this whole idea?
A: No. Health care spending does rise, but not enough to offset the drop in other expenses. Medicare and Medigap help limit those costs.
Q: Is it risky to count on spending less?
A: Not if done conservatively and with backup assets. Most retirees spend less naturally.
Q: Can I use this with my current advisor?
A: Yes! Ask them to use "age banding" or category-specific models. Most modern planning software supports this.
🧾 Example: Meet Jerry and Linda — Planning with Age Bands
Background:
Names: Jerry (65) and Linda (63)
Portfolio at Retirement: $1,200,000
Social Security: $3,500/month combined (starts at age 67)
Initial Annual Spending Goal: $90,000
Health: Good, non-smokers, family history of longevity
Lifestyle: Avid travelers now, likely to slow down in later years
Their financial advisor originally ran their plan using a traditional method — increasing their $90,000 per year goal by 2.5% inflation annually, every year for 30 years. That approach estimated they’d need nearly $2.2 million to fully fund their lifestyle with no risk of shortfall.
👉 This left Jerry feeling panicked — and considering working longer or cutting spending before even retiring.
Reworking the Plan: Using Age Banding
Instead of assuming flat inflation-adjusted spending for every year of retirement, Jerry and Linda’s advisor structured their retirement income plan to align with the natural progression of retirement lifestyle changes:
Go-Go Years (Ages 65–74)
Spending Goal: $90,000 per year
Adjustment: Increases annually by 2.5% for inflation
Rationale: This is the most active stage of retirement — travel, hobbies, dining out, and social activities are at their peak.
Slow-Go Years (Ages 75–84)
Spending Goal: Drops to $76,500 per year, which is 15% less than the prior phase
Adjustment: Grows annually by 1.5% inflation
Rationale: Energy begins to decline, travel slows down, and fewer discretionary activities reduce overall spending.
No-Go Years (Ages 85–94)
Spending Goal: Further reduces to $68,000 per year, a 10% cut from the previous phase
Adjustment: Grows by just 1% inflation annually
Rationale: Most spending is now focused on basics and comfort, with much less activity and more attention on personal care or medical needs.
Health Care (Modeled Separately)
Starting Budget: Begins at $10,000 per year
Adjustment: Assumes 5% annual growth to reflect higher medical cost inflation
Rationale: Covers Medicare premiums, supplemental insurance, prescriptions, and possible long-term care — a crucial component that tends to grow faster than general expenses.
This clear, progressive framework gave Jerry and Linda a more accurate picture of what retirement would really cost — and ultimately helped them retire earlier with confidence, not fear.
How the New Plan Helped
Lower Needed Portfolio: They only needed about $1.5 million, not $2.2 million.
Retired Sooner: Jerry was able to retire at 65 instead of 68.
More Confidence: The plan reflected their real life — not some hypothetical 30-year spending treadmill.
Better Asset Allocation: With more accurate spending projections, their advisor could invest with greater clarity.
In my experience, this kind of real-world planning not only improves the math — it improves the mindset. Retirees like Jerry and Linda feel empowered instead of overwhelmed. And because their spending mirrors actual aging patterns, the plan is more resilient to market volatility and lifestyle shifts.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.