What happens to spending in retirement?

When you retire, will your spending increase, decrease or stay the same. Different people will answer this question differently but let’s take a look at some of my observations from working with people and helping them retire over the past 20 years.

Incomes drop and so does the spending in retirement

For most people, retirement means less income than they had while they were working. As a result, most people assume they have to “cut back” on spending in retirement. The big question is “will be cutting back still means retirement will be the best years of your life?”

Gross income is different than net income

Although I do see that most people retire to less gross income, remember that less gross income may not actually mean the same drop in net income.

Remember that net income as a percentage of gross income is greater before retirement than in retirement because there are more deductions off pay while working. It’s not just tax that is taken off your paycheques. There’s CPP, EI, benefits, pensions, RRSP contributions, union dues, etc. I recall doing some planning for a government employee and their $95,000 gross income while working turned out to be the same net income as $70,000 gross income in retirement.

Related article: Retirement planning with gross incomes can be misleading

Does spending decrease the older you get?

Recently I wrote about the three phases of retirement and the impact these three phases have on different aspects of retirement. One area that was clearly affected was spending in retirement.

Related article: The three phases of retirement

The first 5 to 15 years of retirement tend to represent the golden years or what I call the “Go-go” years. This is a time when you may choose to travel more and have more fun because you physically have the ability to do so.

As you age and health tends to deteriorate, there tends to be less spending on discretionary lifestyle spending. In the “Slow-go” years, you tend to travel less, drive less, and even eat less. You may not play golf or tennis as much and expenses related to socialization tend to drop as well. Overall, many retirees (but not all) find that their spending in retirement actually decreases the older they get.

Spending on healthcare increases the older you get

Some people argue that as spending on discretionary lifestyle decreases over time, spending on healthcare tends to increase over time. I can’t really disagree with that statement but the real question becomes which is bigger? The drop in lifestyle spending or the increase in healthcare spending?

There is no question that healthcare expenses are a big concern for retirees. In fact, many studies suggest it is the biggest concern that retirees have. Right now, Canada still has a highly subsidized healthcare system and the financial burden is not as severe as other countries with alternative health care systems.

Believe me, I am not trying to minimize the concerns of the rising cost of healthcare but I do want people to think about their spending and expenses when planning for retirement to be as detailed and realistic as possible.

Related article: Planning for healthcare costs in retirement

In my biased experience with my parents, clients, and readers I have interacted with, most people still tend to see a decrease in spending as you move from the go-go years to the slow-go years into the no-go years. It certainly does not always work this way but I find most people tend to limit their spending because they fear the worst. They always worry that spending in retirement will increase due to healthcare but they don’t account for the decrease in lifestyle expenses as you get older.

Planning is personal

I’ve said this so many times . . . be careful about overgeneralization, averages, and rules of thumb. The best retirement plan is the personal one that accounts for your individual needs and circumstances.

I’ve seen some retirees impacted significantly by higher inflation and increased costs as they age. But I’ve also seen many retirees who get to a point where their spending decreases to a point where they can’t spend all their income. I’ve seen some people get hit hard with healthcare costs but also others where healthcare expenses in retirement were well below expectations.

It’s impossible to accurately predict what will happen to spend in retirement but it’s still important to reflect on this issue and determine the impact increasing or decreasing expenses in retirement can have on your overall retirement plan.


  1. Fatima Jaffer

    would really appreciate getting your newsletter on a regular basis.

    Thank You.

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