Understanding Retirement Income Needs is one of the most important—and often misunderstood—aspects of financial planning. Traditional models assume retirees spend the same amount each year, adjusted for inflation. However, recently published research in the Financial Planning Review by David Blanchett challenges this assumption and offers a more realistic framework for how spending evolves throughout retirement, building on and updating his previously impactful research on this topic.
Why Retirement Income Needs Aren’t Constant
Blanchett’s research shows that Retirement Income Needs typically decline over time in inflation-adjusted terms. Rather than following a flat spending pattern, retirees tend to spend more in early retirement and gradually reduce spending as they age.
This aligns with the well-known retirement phases:
- Go-Go Years: Higher spending driven by travel, hobbies, and active lifestyles
- Slow-Go Years: Moderate spending as activity levels begin to decline
- No-Go Years: Lower discretionary spending, with potential increases in healthcare costs
This evolving pattern reflects both lifestyle changes and natural aging, making it critical for financial plans to adapt accordingly.
The “Smile” vs. “Smirk” in Changing Needs
Blanchett introduces two important concepts that reshape how we think about Retirement Income:
- Retirement Spending Smile: Spending declines early, then increases later due to healthcare or long-term care expenses
- Retirement Spending Smirk: A more gradual, consistent decline in spending throughout retirement
These models suggest that retirees may not need to maintain constant real income, and incorporating these patterns can potentially increase sustainable withdrawal rates or bequests.
Applying Retirement Income Needs in Real Planning
We recently integrated these insights into the ETFMathGuy Retirement Calculator, helping users model more realistic Retirement Income Needs.
Two key inputs make this possible:
- “Your Baseline Pattern of Annual After-Tax Retirement Income” allows users to reflect expected spending changes across different retirement phases as either a “No Change”, “Smile”, or “Smirk”.
- “Smile or Smirk Annual Growth Rate Adjustment” helps model whether spending will grow or decline steadily and/or increase later in life based on either an arithmetic mean or median interpretation of the empirical data.
By incorporating these dynamic spending patterns, retirees can build more flexible strategies—often allowing for higher spending earlier in retirement without sacrificing long-term sustainability. Ultimately, Retirement Income Needs are not static—they evolve. Planning for that evolution can lead to better outcomes, greater confidence, and a more enjoyable retirement.
