Retirement spending patterns: what most Americans get wrong
In Episode 1 of the Decoding Your Money Podcast, FinStream’s Bob Powell interviews David Blanchett to explore a critical question: What if the biggest retirement planning mistakes are not about saving more — but about misunderstanding retirement spending patterns?
Most Americans are worried about retirement. But Blanchett’s research suggests the real issue may be how households think about saving, investing and spending over time.
Rethinking retirement assumptions
Blanchett challenges several widely held beliefs about retirement.
Many people assume they need to maintain or even increase spending steadily throughout retirement. Others assume conservative investing is always the safest path.
In reality, those assumptions often miss how people actually behave.
Understanding real-world retirement spending patterns — and how they evolve — can lead to more realistic and sustainable financial plans.
The “retirement spending smile”
One of the most important concepts discussed is the “retirement spending smile.”
This pattern shows that:
Spending is often higher in early retirement
It gradually declines through mid-retirement
It rises again later in life, often due to health care costs
This challenges the traditional assumption of flat, inflation-adjusted spending throughout retirement.
Blanchett’s research indicates that many retirees actually spend less than they expect, especially in the middle years.
Are Americans saving and investing the wrong way?
The episode highlights a surprising tension:
Many Americans are saving too little for retirement
At the same time, they may be investing too aggressively
Or in some cases, not spending enough once retired
This disconnect can lead to inefficient outcomes — either running out of money too early or unnecessarily restricting spending and quality of life.
A better way to plan retirement
Blanchett suggests shifting the framework for retirement planning.
Instead of focusing only on probability of success, households may benefit from focusing on goal completion — whether their plan supports the life they actually want.
He also emphasizes:
Calibrating realistic spending assumptions
Adjusting for longevity risk
Accounting for market volatility and health care shocks
These factors are often underestimated in traditional plans.
New ideas: lifetime income and tontines
The conversation also explores emerging and underused strategies.
Blanchett discusses:
Lifetime income annuities as a way to create stable income
Innovative concepts like tontines, which pool longevity risk
These tools can help retirees manage uncertainty and potentially increase confidence in their spending decisions.
Why retirement spending patterns matter
Failure to understand retirement spending patterns can lead to:
Underfunded retirement plans
Overspending early in retirement
Running out of money later in life
Blanchett’s research shows that aligning plans with real behavior and risks can improve both financial outcomes and peace of mind.
The bottom line
Retirement planning is not just about accumulating assets. It is about understanding how money is actually used over time.
By rethinking assumptions about spending, risk and longevity, households can build more flexible and realistic plans — and ultimately create a more secure financial future.