How Spending Evolves in Retirement: A Smile, a Smirk, or Something Else?

Research indicates that inflation‐adjusted (real) retiree spending tends to decrease over time, challenging the common assumption that expenses rise in line with inflation throughout retirement. This piece examines actual changes in retiree spending leveraging data from the Health and Retirement Study. The analysis suggests that even retirees who are relatively well off typically reduce real spending, especially those who are older and spending at higher levels, indicating that choice is a key driver in the decision to spend less. Additionally, evidence supports both “smile” and “smirk” spending trajectories, depending on modeling assumptions (e.g., whether focused on the median or average retiree). Overall, reduced real spending needs to be better integrated in our models given the varied implications of the assumption on optimal retirement decision‐making.