David Blanchett, head of retirement research at Morningstar Investment Management in Chicago, Illinois, coined the term “retirement spending smile” in 2013. Retirees usually have less expenses, with no contributions to a 401 (K) plan, no commuting costs, lowered laundry and meal costs, and other eliminated or reduced expenses. Blanchett wrote in the study “Estimating the True Cost of Retirement” (2013);
“We note that there appears to be a ‘retirement spending smile’ whereby the expenditures actually decrease in real terms for retirees throughout retirement and then increase toward the end. Overall, however, the real change in annual spending through retirement is clearly negative.”
Morningstar Investment Management
Estimating the True Cost of Retirement
David Blanchett, CFA, CFP®
Head of Retirement Research
Morningstar Investment Management
22 W Washington, Chicago, IL
Working Paper, Nov. 5, 2013
While research on retirement spending commonly assumes consumption increases annually by inflation (implying a real change of 0%), we do not witness this relationship within our dataset. We note that there appears to be a “retirement spending smile” whereby the expenditures actually decrease in real terms for retirees throughout retirement and then increase toward the end. Overall, however, the real change in annual spending through retirement is clearly negative.
Could You Be Oversaving for Retirement?
By Mandi Woodruff
December 10, 2013 11:34 AM
People typically spend more in the few years leading up to and after retiring, he found, likely as they boost savings contributions ahead of leaving the workforce and then start to spend heavily, either on travel or moving expenses. But then spending tends to decline through the middle of retirement by as much as 2% until picking back up toward the end of life, likely due to medical costs.
Blanchett calls this a “retirement spending smile” (graph below), when expenditures actually decrease in real terms for retirees throughout retirement and then increase toward the end. “Overall, however, the real change in annual spending through retirement is clearly negative,” he found.
Real retirement spending isn’t rising or declining. More like retirement spending smile. @DavidMBlanchett #AICPAPFP
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4:41 PM - 21 Jan 2014
Journal of Financial Planning (2014)
Exploring the Retirement Consumption Puzzle
by David Blanchett, CFP®, CFA
David Blanchett, CFP®, CFA, is head of retirement research at Morningstar Investment Management in Chicago, Illinois
The actual changes in real retirement spending create a “retirement spending smile” whereby the expenditures increase at a faster rate (although these are still negative) for relatively younger and relatively older retirees. The “smile” can likely be attributed to the fact younger retirees are better able to travel and enjoy retirement, while older retirees incur higher relative medical expenses. The overall changes in real spending, though, are clearly negative; the only real variation is the extent of the negative change.
Smile, you can afford to retire
By Jennie L. Phipps
Wednesday, June 3, 2015
Posted: 2 pm ET
Retirement income needs are like a big smile, recent research has found. A graph of typical spending shows both ends of the spending line curve up, but the middle hanging lower, like your lower lip when you have a big, happy grin on your face.
The “retirement spending smile,” as researchers call it, reflects the likelihood that younger retirees travel more and spend more on the good life. As they age, their lifestyle and their spending slows. Then spending curves up again as they incur more health-care expenses in later life.
Beware the Retirement Splurge
Ruth Davis Konigsberg Nov. 23, 2015
The thinking goes that once you retire, you no longer have to make 401(K) or social security contributions. Certain costs associated with working—commuting, dry cleaning, eating out—will likely go down, while others, such as health care, will likely go up, although perhaps not immediately. This arc in spending was coined the “retirement spending smile” by David Blanchett at Morningstar.
New York City • Banking/Finance/Insurance • Monday, November 23, 2015 • Permalink