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Everyone has a different idea of their dream retirement. Whatever you envision, it’s essential to plan ahead so that your nest egg will last

What are your plans for retirement? Travelling the world? Do you frequently entertain friends and family at your home? Exploring hobbies that you didn’t have time for while working? Whatever your interests, it is critical to plan ahead of time for your spending needs in order to ensure that you can finance your ideal retirement.

At Capital Union Bank , we spend a lot of time researching how spending changes over the course of retirement and how lifestyle choices can influence retirement readiness. One thing we’ve discovered is that spending rarely remains steady at this stage in life.


To be sure, life in retirement has many individual differences, but this “retirement spending smile” pattern can assist most people in developing a strategy that takes into consideration this general pattern of expenses.

The ‘Retirement Spending Smile’

Spending tends to evolve over the course of retirement.

Want to Invest table

Six Common Retirement Lifestyles

Of course, no two retirements look the same. One person’s definition of a “dream retirement”—and the related costs—may be vastly different from another’s. That is why it is critical to plan ahead of time, taking into account your specific lifestyle preferences and spending habits. To investigate this further, my team and I developed six hypothetical retiree profiles and then utilised financial modelling to see how each retiree’s distinct habits might effect their retirement readiness. Specifically, we examined:

  • Home Hobbyists spend heavily on home remodeling and may also pursue other pastimes, such as restoring antique cars or donating to community projects, resulting in above-average spending early on. 
  • Entertainers spend more of their income on food and beverages to entertain friends and family at home. Their overall spending tends to decline more rapidly early in retirement than other groups.
  • Globetrotters spend a large fraction of their budget on travel prior to retiring. Once they retire and have more free time, travel expenses increase even more, especially in the early and middle years of retirement.
  • Early Birds live by the motto “you only live once.” Early Birds tend to retire early, and have higher spending rates, especially on travel and entertainment.
  • Health-Care Spenders use a significant share of their disposable income on higher insurance premiums for supplemental policies, prescription-drug expenses and special treatments in excess of insurance coverage.
  • Average Retirees set the benchmark by which the other five types can be compared. Their spending most closely resembles the “retirement spending smile.”   

Retirement Outcomes: Best and Worst

How did each hypothetical retiree make out in our modeling?

Assuming everyone starts retirement with a $2 million tax-exempt portfolio, 60% in stocks and 40% in bonds, could they successfully cover their costs? The good news is that all six retiree types had a very high likelihood of being able to cover their essential expenses, such as food and housing, throughout retirement.

However, some hypothetical retirees had an easier time than others affording both their essential and discretionary expenses. Due largely to their more modest spending habits, Average Retirees and Entertainers fared best, each with a 66% chance of being able to cover the total cost of their desired lifestyle throughout retirement. Home Hobbyists and Health-Care Spenders, respectively, had a 51% and 43% likelihood.

However, Globetrotters and Early Birds may have to take a hard look at their spending plans. Their probability of covering all of their retirement expenses was only 12% and 2%, respectively, due to their much higher spending in early and middle retirement, with the Early Birds facing the added challenge of a longer retirement and having to pay health insurance premiums out-of-pocket until they become eligible for Medicare at age 65.

The probability of success in retirement

The probablility of success in retirement bar chartSource: Morgan Stanley Wealth Management, as of June 2019. Assumes a $2 million tax exempt portfolio invested 60% in stocks and 40% in bonds.

Strategies to Prepare for Any Retirement Style

Despite the sometimes sobering study results, there are a number of steps anyone can take to increase the odds of a successful retirement. Three that we often recommend, particularly for retirees who spend more heavily:  

  • Part-time work in early retirement. Taking on a home-based gig can help retirees boost their savings, while also keeping the mind engaged.

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