How to Rethink Retirement Spending: What 5 Million Retirees Taught J.P. Morgan About Saving Smarter
Most retirement plans assume one thing: your expenses will rise every year, mainly due to inflation. But what if that assumption is wrong? What if you could spend less than you thought, while living better in retirement?
A groundbreaking J.P. Morgan study that analyzed spending patterns from over 5 million retirees uncovered three surprising insights that could completely change how you plan, save, and spend for retirement.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Why Listen to Me?
I help real families and individuals design personalized retirement income plans that work in the real world—not just on paper. Having reviewed hundreds of retirement scenarios, I've seen firsthand that the biggest risk to financial success isn't always spending too much. It's often planning too conservatively and missing out on the freedom your money could have afforded you.
Key Takeaways
- Retirement spending decreases over time, not increases.
- There is a 5-year spending surge around retirement.
- Traditional planning models may be overestimating how much you need by 25% or more.
What Most Retirement Plans Get Wrong
The typical approach to retirement planning assumes your spending will increase every year with inflation—usually about 3% annually. But according to J.P. Morgan's real-world data:
- Actual spending only rises about 1.9% in early retirement.
- In mid to late retirement, it increases by 0.5% or even declines.
This means if you're using the traditional model, you may be saving thousands more than necessary, which often leads to under-spending in retirement. Not ideal.
The 3 Biggest Retirement Spending Surprises
1. The Spending Surge Around Retirement
What the data shows:
2 years before and 3 years after retirement = a big spending spike.
Up to 30% more is spent during this transition.
Why?
Travel and bucket-list items.
Home renovations.
Relocation expenses.
Advice:
Plan for elevated withdrawals in those 5 years.
Set aside a "retirement launch fund".
In my experience: Retirees enjoy this phase the most. Don't underfund it out of fear.
2. Retirement Spending Declines After Age 75
This part surprised a lot of people, but it's one of the most important lessons:
J.P. Morgan's "Three Phases of Retirement Spending":
Go-Go Years (Ages 65–74)
Active lifestyle: Travel, golf, home upgrades.
Annual spending increase: ~1.9%
Slow-Go Years (Ages 75–84)
Less travel, more maintenance.
Annual spending growth: ~0.5%
No-Go Years (85+)
Health-related expenses rise.
Everything else drops sharply (travel, restaurants, shopping).
Overall spending begins to decline.
Takeaway: The idea of needing more and more every year isn't backed by reality. Plan flexibly, not fearfully.
3. Most Retirees Don't Spend in a Straight Line
J.P. Morgan found that only 44% of retirees maintained consistent spending patterns. The rest fell into one of the following categories:
Downshifters: Gradual reduction in spending.
Upshifters: Gradual increase.
Temporary Downshifters: Short dips due to health or life events.
Temporary Upshifters: Short bursts of higher spending (e.g., weddings, big trips).
Rollercoasters: Constant ups and downs.
Implication: Rigid withdrawal rules (like the 4% rule) may be too simplistic.
I've found: Flexibility = freedom. Retirement success isn't about sticking to a single number. It's about adapting your spending to your life.
Comparing Models: CPI vs. Category-Based Planning
Traditional Model (CPI-Based):
Spending increases at a fixed 3% annually.
Leads to a required nest egg of $1.2–$1.3 million.
Category-Based Model (J.P. Morgan):
Real-world annual increases start at 1.9%, taper to 0.5%, and decline later.
Requires just $872,000 for the same lifestyle.
That's a 26% reduction in necessary savings!
Real-World Impact:
Many retirees over-save and under-spend. This leads to excess wealth being left untouched.
That may sound good—but it often means missed memories, unused experiences, and unfulfilled goals.
Sequence of Returns: Why Early Retirement Years Matter Most
The first few years of retirement set the tone. If the market drops and you're withdrawing aggressively, your portfolio can suffer irreversible damage.
Two retirees, same returns—different results:
Mrs. Green: Retires into a strong market. Portfolio thrives.
Mrs. Red: Retires into a weak market. Withdrawals hurt more.
This is known as "Sequence of Returns Risk".
How to protect yourself:
Use a bucket strategy (cash + bonds + equities).
Consider a guardrail approach to withdrawals.
Flex your spending up or down based on market conditions.
The Bottom Line: Build a Flexible, Real-World Plan
Retirement isn't linear. Your plan shouldn't be either.
Instead of planning to spend more every year:
Plan to enjoy more early on. Expect a natural decline. Adjust with life—not theory.
Investors I've worked with who follow this approach:
Feel more confident.
Enjoy retirement without guilt.
Often retire earlier than they thought possible.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQs
Q: Should I still use the 4% rule?
A: It's a good starting point, but not the finish line. Use it as a framework, then adjust based on market conditions, spending flexibility, and your retirement phase.
Q: What if I'm already retired and using a CPI-based plan?
A: You're likely more secure than you think. Consider gradually revising your projections with real spending trends.
Q: Is it bad to oversave?
A: It depends. Some people value peace of mind over optimal usage. But many find they could have enjoyed more if they'd planned around real-world data instead of worst-case scenarios.
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.