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The Retirement Spending Smile

Written by Lifetime Retirement Income Team | 12 August 2025

Finance expert Liz Koh explains the so-called “Retirement Spending Smile”. It’s a useful framework for thinking about how your expenses might shift over time, and why a detailed personal budget (not a generic rule of thumb) is still your best tool.

You can read the original article here: The Retirement Spending Smile. Or you can read the article published in full below and tell us what you think in the comments section.

But please remember the information in this article is general and does not constitute specific advice to any person.  

 

The Retirement Spending Smile

 

There is no doubt that retiring is one of life’s major transitions, with implications for not only your daily routine but also your finances. One of the biggest adjustments is how to manage your spending once you stop earning a regular income.

 

Understand retirement spending patterns

While some expenses naturally decrease in retirement, others tend to rise. This can mean that you spend pretty much the same as you did when you were working, just on different things. It’s important to get a good handle on retirement spending patterns so you can plan accordingly.

Many experts suggest that retirees need about 70% to 80% of their pre-retirement income to maintain a comfortable lifestyle. This rule of thumb is based on several assumptions: that work-related costs disappear, that mortgages are paid off, and that older adults have a simpler lifestyle with fewer material needs. While this can be true for some people, actual changes in spending vary significantly depending on your own personal choices and circumstances.

 

Some expenses can fall

There are several categories where retirees often see a decline in expenses:

  • Work-related costs are the most obvious. Spending on things like commuting, a professional wardrobe, and lunches out drop off. For some, these expenses can account for a considerable portion of their fortnightly budget.
  • You’ll no longer need to contribute to KiwiSaver or other pension schemes.
  • You’ll likely fall into a lower tax bracket due to earning less.
  • If you've paid off your mortgage, this can significantly reduce your fortnightly costs.
  • Hopefully, by the time you retire your children will be living independently and supporting themselves (although this is not always the case!) and your family-related expenses will be lower.
  • Some couples choose to run one vehicle rather than two, leading to a substantial cost saving.
 

While others might rise

While many expenses decline when you retire, others could rise significantly:

  • The cost of healthcare is one of the most underestimated areas of spending in retirement. Health insurance premiums increase significantly as we age due to the increased likelihood of claims. Older people tend to require more frequent medical visits, specialised care, health aids such as glasses and hearing aids and dietary supplements.

  • With more free time, many retirees want to travel, take up new hobbies, or spend more time dining out and enjoying entertainment, especially in the early years (the ‘live it up stage’). This kind of discretionary spending can rise significantly compared to pre-retirement levels.

  • Spending more time at home makes it more essential that your living space is comfortable and pleasant. This might mean improved heating systems, better insulation (e.g. double glazing) and interior decoration. Later in life, aging in place often requires home modifications to facilitate reduced mobility.

  • Some retirees find themselves supporting adult children or grandchildren financially, especially during periods of economic uncertainty or when relationships break down. These unexpected expenses can significantly impact a retirement budget.

 

Spend with a smile

What many experts have noted is that spending tends to be high in the early years of retirement when people travel more and enjoy leisure activities. It then decreases in the middle years as retirees settle into a routine and less active lifestyle. Finally, spending often increases again in the later years due to rising healthcare and long-term care expenses.

If you were to plot this on a graph it creates what is called the ‘retirement spending smile.’ However, not everybody’s smile is a big one! Some people’s spending patterns will be flatter than others. Obviously, the more wealth you have at your disposal, the bigger your smile will be.

The best way to plan ahead for retirement is not to rely on rules of thumb, such as living on 70-80% of your former income, but to do a detailed retirement budget that reflects your own circumstances and goals. You’ll need to adjust the budget over time, but having one will help bring peace of mind and that, in itself, should make you smile.

Lifetime has several useful (and free!) tools to help you prepare your personal retirement income and spending plan. Check out:

 

 

 

Have you thought about Lifetime Retirement Income to look after your money in retirement?  

They know that people spending in retirement require significantly different strategies to those who are saving for retirement.  They manage retirees money a little differently to people who are saving for retirement. The reason for that is they have to make sure retirees savings last.

So click on the button below and take a couple of minutes to read all about them.

 

 
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