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Do Retirees Want Steady, Increasing or Decreasing Spending?

Wealth and health are the major determining factors.

While many financial planners assume that retirees want to maintain their pre-retirement standard of living, it’s possible that at least some retirees will prefer to frontload spending, decreasing their consumption over time. Whether retirees prefer a constant, increasing or decreasing path of consumption has implications for retirement planning and the adequacy of assets needed to support desired spending.

To address this issue, Anqi Chen and Alicia Munnell, authors of the 2021 study Do Retirees Want Constant, Increasing, or Decreasing Consumption?, examined retirement consumption over long periods, analyzed whether declines in consumption were driven by necessity or preferences and explored whether those with steeper mortality profiles were more likely to frontload consumption.

The data for their analysis was drawn from the Health and Retirement Study (HRS) Consumption and Activities Mail Survey (CAMS) module, covering the period 1992-2018, and the Panel Study of Income Dynamics (PSID), covering the period 2001-2019. Their analysis sample consisted of CAMS households in which at least one person was 'retired.’ Retirement here is defined as claiming Social Security benefits. Households that claimed benefits before age 62 and were likely disability insurance recipients or survivors were excluded. The final sample included 1,223 total households.

The authors began by noting: “Most previous studies have looked at the change at retirement, finding a sharp post-retirement drop as retirees consume less than they did while working. This decline has been called the ‘retirement consumption puzzle,’ as it seemingly contradicts the lifecycle model’s prediction that people smooth their consumption over predictable income changes, like retirement. Research has resolved this puzzle with three complementary explanations. First, work-related expenses decline as retirees no longer have to spend on professional attire and commuting. Second, food expenditures decrease as retirees have more time to spend cooking and shopping for low prices. Third, some people have been forced into involuntary retirement due to an adverse health event or unemployment, which is an unexpected negative shock that the lifecycle model predicts would lead people to reduce their consumption.”  

Here a summary of their key findings:

On average, household consumption declined about 0.7% - 0.8% a year during retirement—20 years into retirement, consumption could be about 12% - 13% lower than at the beginning of retirement. The decline slightly sped up with more years in retirement.

Consumption for wealthy and healthy households was virtually flat, declining only 0.3% a year during retirement—the decline also slowed down over time for households in the top two terciles.

The magnitude of the decline among the wealthy and healthy looked similar to the average for wealthy households. This result is primarily because most wealthy households (60%) were in very good/excellent health at retirement, while only 34% and 9% percent had good or fair/poor health, respectively.

For those with less wealth or with health issues, consumption declined more over time. Wealth and health constraints help explain the observed pattern of declining consumption, as households may want to travel or eat out more but simply are unable to do so due to health limitations.

Retirees who self-reported being in better health at the beginning of retirement had flatter consumption paths. Consumption of households with poor health tended to tick up in later years, which might reflect higher late-life medical expenses—health constraints are also driving part of the observed declines in consumption in retirement.

Their findings led Chen and Munnell to conclude that household consumption preferences in retirement have important implications for our understanding of retirement adequacy. The policy implications are:

  1. Retirees likely prefer to enjoy constant consumption in retirement;
  2. A retirement saving shortfall exists because consumption declines are larger for households without assets; and
  3. Social Security is an important resource for maintaining preferred consumption.


Chen and Munnell’s findings demonstrate that wealth and health are important determinants in consumption paths in retirement, and preferred consumption is likely much flatter than observed in the data. Flatter consumption means that safe withdrawal rates need to be lower, or the risk of failure will be greater.

Larry Swedroe has authored or co-authored 18 books on investing. His latest is Your Essential Guide to Sustainable Investing. All opinions expressed are solely his opinions and do not reflect the opinions of Buckingham Strategic Wealth or its affiliates. This information is provided for general information purposes only and should not be construed as financial, tax or legal advice. 

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