The Big Question

So, back to the big question: How much is enough?

How much will we really spend during our retirement years?

Well, here’s the surprising thing: some research suggests we’ll spend less than we expect.

Why?

Spending Declines with Age

Our spending doesn’t stay constant in retirement—it changes over time. Generally, we spend more in the earlier, more active years: getaways, personal pursuits, fixing up the house, and ticking off the old bucket list. Then things start to slow down. Makes sense—I’m not the squash player at 70 that I was at 50 or 60. (Yea, I know… some of you would say I never was. He he.)

Data from the long-running Health and Retirement Study (HRS) in the U.S. shows that retiree spending typically declines by about 20% over the first decade of retirement, especially in discretionary areas like travel and home improvements[1]. Interestingly, this drop isn’t necessarily driven by financial pressure—it often reflects shifting lifestyles and priorities.

A caveat: the study reflects U.S. households with retirement savings. What it shows is that while spending does increase in some categories—like healthcare—it tends to rise more slowly than inflation, meaning that retirees’ real (inflation-adjusted) spending declines over time[1].

Also, retirees tend to spend more in the first decade of retirement. That makes sense to me—especially if you’re an active and healthy guy. I plan to be more adventurous while I still can.

Sure, there’s always the risk that I will spend more than I should and regret it later financially. But quality of life wins my vote. If I have less funds in later life, it probably won’t matter all that much—because I will likely be less inclined (or able) to be as active anyway. (Says he who still hopes to squash until he drops ☺️)

Healthcare Spending: A Tsunami Risk

This is one area of expense that, in this country, we all know tends to rise well beyond the average inflation rate. And later in life, health risk events can hit your retirement savings like a tsunami—fast and forceful.

All I can say is: I intend to plan for it. For me, that means ensuring I have a medical aid plan that covers the “dreaded diseases,” along with a top-up policy to cover the inevitable shortfalls.

Interestingly, retirees often spend less after a major health event—not necessarily because they want to, but because the psychological or physical impact can reduce their mobility, independence, or even motivation to engage in the more active pursuits.

Rethinking the 4% Rule

Most people have probably heard of the “4% withdrawal rule.” It’s a rule of thumb—a heuristic—that originated from research by William Bengen[2], suggesting that if you withdraw 4% of your portfolio in your first year of retirement—and adjust that amount annually for inflation—you shouldn’t run out of money over a 30-year retirement.

Another guideline is to take your total portfolio (including retirement annuities, pensions, stock market shares, etc.) and divide it by your expected longevity.

Sounds simple enough. But more recent research suggests that the 4% rule should be seen only as a loose guideline—not a guarantee—and that it may be too rigid[3]. Once again, studies show that actual retirement spending often doesn’t align neatly with that 4% model.

After all we just said—how we tend to spend more in our earlier years—why not go beyond 4% in the early phase and reduce to something like 3% later on? Bengen’s original work was based on the absolute worst-case historical scenarios.

And those very wealthy retirees? Evidence shows they tend to draw far less than their portfolios could safely allow[4]. Perhaps because after decades of disciplined saving, it’s tough to flip into “lekker, let’s blow the kids’ inheritance” mode.

Legacy, and the Psychology of Spending

Another aspect that more financially secure retirees often consider is leaving a legacy for their kids. Noble idea—but best to check first. They may not care.

“Spend and enjoy the money, Dad,” they may be inclined to say.

I know the feeling. I’ve always found it hard to spend—he he. My spouse says I’m generous… just not to myself.

There’s also the idea of giving with a warm hand rather than with a cold one. Why? Because when you give while you’re still alive, you get to see the impact—and hopefully the joy—it brings. And not necessarily because the kids now have a room waiting for you when you visit. Do it without expecting anything in return.

Closing Thoughts:

Reassuring, perhaps, that we tend to spend less than our anxiety allows us to believe? Maybe.

But also a reminder that your own number—my and your version of “enough”—depends entirely on our circumstances and aspirations.

Footnotes

[1] Center for Retirement Research at Boston College – How Does Spending Change in Retirement? https://crr.bc.edu/briefs/how-does-spending-change-in-retirement/

[2] Bengen, William P. (1994). “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning.

[3] Morningstar Research (2021) – The State of Retirement Income. https://www.morningstar.com/lp/retirement-income

[4] J.P. Morgan Asset Management – Guide to Retirement (2023 Edition). https://am.jpmorgan.com