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Research has shown that individual and household spending declines in real-dollar terms upon and following retirement. Yet most financial advisors still use traditional retirement planning approaches that target constant real-dollar spending for the client’s planning period. This targeting of constant dollar spending in retirement has more to do with following traditional practice and software limitations rather any specific desire to meet client needs. In this article, I will:

I will conclude the article with an example to illustrate how the actuarial approach can be used to:

  • increase your client’s spending budgets;
  • decrease the assets necessary to satisfy a given spending objective;
  • increase spending flexibility; or
  • some combination of the above

by developing a spending strategy for your clients that better aligns with their declining spending needs in retirement.


In his 1998 book The Prosperous Retirement: Guide to the New Reality, Michael Stein talked about the “go-go, slow-go and no-go” phases of retirement and their implications for retirement planning. Stein’s first rule of retirement was that the active stage (go-go) spending budget “tends to equal the pre-retirement budget, if the retiree can afford it.” In the subsequent stages, spending is reduced as older retirees tend to grow weary of long vacations and traveling.

In his 2005 FPA Journal article, Reality Retirement Planning: A New Paradigm for an Old Science, Ty Bernicke criticized “traditional retirement planning” where “consumers tend to over save for retirement, underspend in their early years of retirement or postpone retirement.” He advocated a new retirement-planning approach based on the reality that a household's real spending will generally decrease incrementally throughout retirement. The anticipated result, per Bernicke, was “clients can make more realistic retirement saving assumptions and will be able to retire sooner.”