What is the Retirement Smile?
The spending smile, according to Blanchett, reflects the changes in expenditure as we go into retirement and beyond.
David Blanchett’s 2014 article, “Exploring the Retirement consumption Puzzle” puts some data behind this consumption pattern by looking at household survey data to track their inflation adjusted spending through time.
You'll probably enjoy the extra time and freedom when you first retire. This can involve going on more holidays, engaging in hobbies you previously didn't have time for, spending more time with loved ones, dining out, or just enjoying the little things in life.
Your retirement spending may spike in the initial years due to these new costs and experiences. However, the thrill of trying something new every day will probably wear off, and you won't be racking up as many extra costs as you were, which will result in a decrease in your retirement expenditures.
Retirees spend more during the beginning of their retirement and then tend to slow down and spend less as they become older.
However, as time passes, the amount spent on medical bills will climb, negating this sum and driving up your costs.
This demonstrates the importance of reviewing your retirement spending patterns in determining a sustainable spending rate. Regular reviews and Cash flow modelling of expenditure that has been adjusted for inflation is a sensible thing to do.