The Best Money Advice Most Retirees Never Hear
Retirement advice you've never heard! Discover why you might be saving too much and how to finally enjoy your money. Learn the 'spending smirk' and unlock your retireme
Many retirees receive financial advice geared towards younger individuals, focusing on saving and frugality. However, a critical, often overlooked aspect of retirement planning involves understanding how to spend down accumulated assets. Research indicates that a significant portion of retirees retain their principal, suggesting a disconnect between saving habits and spending realities in later life.
Spending Patterns in Retirement
Studies tracking retirees over extended periods reveal diverse spending behaviors. The Employee Benefit Research Institute (EBRI) published research in May 2026 that followed retirees for 21 to 22 years. This study found that approximately one-third of retirees still possessed 100% or more of their initial retirement savings after two decades.
Further analysis using the Health and Retirement Study, which monitors individuals over decades, provides more granular data:
- Lower Asset Households: Median spending resulted in a 43% reduction of non-housing assets.
- Middle Asset Households: Median spending led to a 30% reduction of non-housing assets. Notably, 43% of this group retained 100% or more of their starting balance.
- High Asset Households: Median spending resulted in a 42% reduction of non-housing assets.
The EBRI study highlights that middle-asset households, those with sufficient resources for choices but not invulnerability, preserved the most of their principal. This data tracks the same households over time, offering robust insights into actual spending patterns.
Evolving Spending Models
Traditional retirement planning often assumes a level withdrawal rate, adjusted for inflation, throughout retirement. This approach is influenced by the 4% rule, which suggests a sustainable annual withdrawal. However, recent research challenges this assumption.
David Blanchett's research, published in the Financial Planning Review, analyzed data from the Health and Retirement Study and the Bureau of Labor Statistics Consumer Expenditure Survey. Blanchett identified a "spending smirk" rather than the previously assumed "spending smile."
- Spending Smile: Characterized by high spending in early retirement, a dip in middle age, and a resurgence in later years.
- Spending Smirk: Characterized by high spending in early retirement, followed by a continuous decline in spending throughout subsequent years.
This "smirk" is attributed to factors such as reduced travel in older age, a fully furnished home, and the absence of expenses like student loan payments or college tuition for children. While late-life healthcare costs exist, Medicare and supplemental insurance cover a substantial portion. The "spending smile" observed in averages is often skewed by a minority with exceptionally high end-of-life medical expenses.
The implications of these spending models are significant for withdrawal rates:
- Assuming a Level Spending: A starting withdrawal rate of 5.2% might be sustainable.
- Assuming a "Spending Smirk": A withdrawal rate of 6.2% could be feasible, representing a 20% increase in annual income from the same portfolio.
Morningstar's 2026 forecast of a 3.9% withdrawal rate is based on different assumptions, primarily a level spending pattern. Understanding these underlying assumptions is crucial for personalized financial planning.
The Impact of Pensions and Security
The presence of a pension can paradoxically lead to less spending of personal assets. EBRI research indicates that low-asset retirees without a steady income stream saw their median assets fall by 89% over 21-22 years. In contrast, low-asset retirees with a defined benefit pension experienced only a 29% drop in assets. This suggests that a guaranteed income floor provides security, enabling individuals to preserve their own savings rather than drawing them down.
Health Span and Spending Opportunities
Life expectancy figures, such as those from the 2026 Social Security Trustees Report (18.4 years for average 65-year-old males, 20.9 for females), do not fully account for "health span" or usable life expectancy. A CDC study from 2007-2009 indicated an average health span of 13.9 years for individuals at age 65.
This distinction is critical because the years with the highest capacity for travel and experiences may coincide with periods when individuals feel more financially secure but less physically able. The risk exists of reaching advanced age with substantial savings but having forgone desired experiences due to ingrained saving habits.
Long-Term Care Considerations
A significant factor influencing retirement savings is the need for long-term care. Projections from the Department of Health and Human Services suggest that about 56% of individuals turning 65 will require some form of long-term care, with an average need of 2.8 years, and 22% requiring care for five years or longer.
Crucially, Medicare does not cover long-term custodial care. The financial burden falls on families or, in the absence of assets, Medicaid. For individuals without long-term care insurance, a pension, and with a family history of health concerns, a substantial untouched balance can function as a self-funded insurance policy. This is a legitimate planning strategy when the need is clearly defined, distinguishing it from simply adhering to ingrained saving behaviors.
Actionable Steps for Retirees
The core message for retirees is permission to spend accumulated savings, particularly when those savings exceed defined needs for long-term care and emergencies. The goal of saving was to provide a tool for a desired lifestyle, not merely to accumulate a balance. Four steps can help retirees re-evaluate their spending:
- Name the Number: Quantify the exact amount designated for long-term care and emergencies. An inability to specify a figure often indicates a psychological barrier to spending.
- Identify Surplus: Any assets above the named long-term care and emergency fund are considered surplus. Assign a specific purpose to this surplus, such as home renovations, travel, or supporting grandchildren's education.
- Test Spending Assumptions: Review financial plans to ensure they do not assume level spending throughout retirement. Compare plans based on a "spending smile" versus a "spending smirk" to understand potential withdrawal capacity.
- Re-evaluate: If, after these steps, the decision is to maintain current savings levels, that is a valid choice. The objective is to empower retirees with information and options, not to mandate increased spending.
The Problem with Old Retirement Advice
Traditional retirement advice (spend less, want less) is outdated for current retirees who have already practiced these habits. The focus needs to shift to what to do after savings stop, as research shows significant consequences if no plan is in place for this phase.
- Most retirement advice is for people 30 years younger.
- Current retirees have already implemented 'spend less, want less' advice.
- The critical phase is 'the next chapter' after savings stop.
- Research shows what happens if no guidance is provided for post-savings retirement.
Retiree Spending Habits: What the Research Shows
A 2026 Employee Benefit Research Institute (EBRI) study tracked retirees for 21-22 years, finding that about a third still had 100% or more of their initial money. This highlights a common issue of not spending down assets, with median spending percentages varying by asset level (lower: 43%, middle: 30%, high: 42%).
- EBRI study (May 2026) tracked retirees for 21-22 years.
- Roughly one-third of retirees had 100%+ of their starting money after two decades.
- Median spending of non-housing money: Lower assets (43%), Middle assets (30%), High assets (42%).
- Middle asset group preserved the most (43% had 100%+).
- The research compares the same households over time.
Spending Patterns: Smile vs. Smirk
The typical retirement spending curve is often assumed to be a 'spending smile' (high early, low middle, high late). However, new research suggests a 'spending smirk' (high early, continuously decreasing). This difference impacts withdrawal rates, potentially allowing higher initial withdrawals (e.g., 6.2% vs. 5.2%) than standard plans assume.
- Most retirement plans assume level withdrawals adjusted for inflation.
- The 4% rule is a guideline but assumes level withdrawals.
- David Blanchett's research suggests a 'spending smirk' rather than a 'spending smile'.
- Spending typically falls throughout retirement due to fewer activities and paid-off expenses.
- A spending smirk allows for higher initial withdrawal rates (e.g., 6.2%) compared to a spending smile (e.g., 5.2%).
- Morningstar's 3.9% forecast assumes a level spend, differing from Blanchett's assumptions.
The Pension Paradox: Security and Spending
The presence of a pension can paradoxically lead to lower spending of personal assets. EBRI data shows low-asset retirees with pensions spent down significantly less (29%) compared to those without pensions (89%), suggesting security provides permission to build a cushion rather than spend.
- Retirees with pensions are expected to spend more freely due to a safety net.
- EBRI research shows the opposite: people with pensions spent less of their own money.
- Low-asset retirees without pensions saw median assets fall by 89% over 21-22 years.
- Low-asset retirees with defined benefit pensions saw assets drop by 29%.
- Security can lead to building a cushion rather than spending.
Life Expectancy vs. Health Span: Planning for Active Years
Life expectancy differs from usable life expectancy (health span). While average life expectancy at 65 is around 20 years, the average health span is closer to 13.9 years. This means enjoyable activities might occur during years when retirees feel too tired, or they might reach old age with significant savings but regret not having lived more.
- Average life expectancy for a 65-year-old male is ~18.4 years, female ~20.9 years (Social Security Trustees, 2026).
- Average health span at 65 is ~13.9 years (CDC study 2007-2009).
- Health span can vary significantly; some maintain good health into their 90s.
- Retirees might miss opportunities to travel or engage in activities due to perceived age or fatigue.
- There's a risk of having ample savings but regretting not having lived fully.
The Long-Term Care Risk
Long-term care (LTC) is a significant risk, with 55-70% of people needing some form. Medicare doesn't cover custodial care, leaving costs to individuals or Medicaid. Holding substantial savings without LTC insurance or a pension can be a form of self-funded insurance, a legitimate plan if tied to a specific condition.
- 55-70% of people need some form of long-term care.
- Department of Health and Human Services projects 56% of 65-year-olds will need LTC.
- Average LTC need is 2.8 years; 22% need it for 5+ years.
- Medicare does not cover long-term custodial care.
- Costs fall on family, Medicaid, or long-term care insurance.
- Holding a large balance without LTC insurance can be a self-funded insurance policy.
Four Steps to Permission to Spend
The core message is that retirees need 'permission to spend' their savings, which were accumulated as a tool, not an end goal. The video outlines four steps: name your long-term care/emergency number, identify surplus funds above that, assign a job to the surplus (e.g., a trip), and test spending assumptions in financial plans.
- The advice retirees need is 'permission to spend'.
- Saving was a tool, the balance was not the ultimate goal.
- A third of retirees have at least their starting balance after 20 years.
- Step 1: Name the specific number for long-term care/emergencies.
- Step 2: Identify money above that number as surplus.
- Step 3: Give surplus money a specific job (e.g., a trip, kitchen renovation).
- Step 4: Test spending assumptions in financial plans, comparing 'smile' vs. 'smirk' scenarios.