The Three Phases of Retirement Spending: Planning for Changing Needs
Understand how spending patterns change throughout retirement and plan your income strategy accordingly.
CAC
Christine Adams, CFP®
Retirement Lifestyle Planner
Published
Retirement is not a single, uniform phase of life – it is a journey with distinct stages, each with different spending patterns and needs. Understanding these phases helps you plan more accurately and avoid both overspending early and unnecessary deprivation. The common framework divides retirement into three phases: the active go-go years, the transitional slow-go years, and the later no-go years. This guide explores each phase and how to plan your income strategy for changing needs throughout retirement.
The go-go years typically span ages 65-75, though timing varies by individual. This phase is characterized by high activity levels, travel, hobbies, and enjoying the freedom retirement provides. Spending is often highest during this phase as retirees check items off bucket lists, visit family, and pursue long-delayed interests. Health is generally good, energy is high, and the desire to make the most of retirement drives spending. Plan for higher discretionary spending during this phase – this is when you will use that travel budget and hobby fund.
The slow-go years typically occur from ages 75-85. Activity levels naturally decline as energy decreases and health issues may emerge. Travel becomes less frequent or shifts to less strenuous destinations. Spending often decreases during this phase as retirees settle into quieter routines. However, healthcare costs may begin rising, partially offsetting reduced discretionary spending. This phase requires balancing reduced activity spending with potentially increasing medical expenses. Many retirees find this phase surprisingly affordable.
3The No-Go Years: Later Retirement
The no-go years, typically after 85, bring significant lifestyle changes. Travel and active pursuits largely cease. However, healthcare and potential long-term care costs can spike dramatically. A nursing home or full-time home care can cost $100,000+ annually. This phase is the most unpredictable – some retirees remain healthy and independent with low costs, while others face catastrophic healthcare expenses. Planning for this phase requires considering long-term care insurance, substantial reserves, or Medicaid planning strategies.
Research shows retirement spending follows a smile pattern when adjusted for inflation. Spending is high in early retirement (go-go years), dips in middle retirement (slow-go years), and may rise again in late retirement (no-go years) due to healthcare costs. This pattern suggests the traditional assumption of constant inflation-adjusted spending may overestimate middle-retirement needs while underestimating late-retirement healthcare costs. A more accurate model plans for varying spending across phases rather than a single constant amount.
5Planning Your Income Strategy for Each Phase
Align your income strategy with expected spending phases. In go-go years, you may withdraw more from portfolios to fund active lifestyle while delaying Social Security for higher later benefits. In slow-go years, reduced spending may allow portfolio recovery and continued growth. In no-go years, guaranteed income sources (Social Security, pensions, annuities) become more valuable as cognitive decline may make investment management difficult. Build flexibility into your plan – the ability to adjust spending based on health, market conditions, and changing needs is more valuable than a rigid withdrawal rate.
Key Takeaways
Go-go years (65-75) typically have highest discretionary spending
Slow-go years (75-85) often see reduced spending as activity decreases
No-go years (85+) may bring high healthcare and long-term care costs
The spending smile pattern shows varying needs across retirement phases
Build flexibility into your income strategy to adapt to changing needs
Conclusion
Understanding the three phases of retirement spending helps you plan more realistically and enjoy retirement more fully. Do not deprive yourself in early retirement out of fear of running out of money if your spending will naturally decline later. Conversely, do not ignore the potential for high healthcare costs in later years. A flexible income strategy that adapts to changing needs across phases provides both security and the freedom to enjoy each stage of retirement to its fullest.
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