Real spending in retirement (the retirement smile, Die With Zero)

Every mechanism in this book starts from an annual need. What is left to establish is what spending actually does over forty years. The data answers plainly. It is not flat. Real retirees spend heavily at the start, the go-go years: travel, projects, the health that makes everything possible. Then less and less for twenty years, because the pace slows well before the body does. Then more again at the end, with health care and long-term care. That is the smile-shaped curve David Blanchett documented. A plan that indexes a constant need for forty years therefore gets it wrong twice. It underfunds the start, the only years when some of that spending is even possible. And it overfunds the middle.

The chapter works through the case. The data comes first: the smile, its slope, and the honest argument about what causes it. Then the late upturn and how to fund it, seen here from the budget side. Then Bill Perkins's Die With Zero, where experiences come with a date attached (the skiing happens at 55, not at 80), the reasonable version of a book that usually gets caricatured. Then what all this means for someone who retires early, with spending deliberately loaded onto the front, the years from 45 to 65. Then how to model a spending profile, with its annual drift, its smile shape and the ABW slope. And last the budget engineering that goes with it, because spending well is a skill, the final one in this book and not the smallest (The psychology of spending: why spending it is the hard part).

The observed shape of a retiree's real spending (Blanchett). High through the active years, declining for twenty, then rising again late in life with health care. A constant need over-provisions the middle.

The smile: the data, and the argument about its cause§

The curve is robust: it survives controls for income, cohort and country. What it means is contested, and that argument matters for your plan. One reading is preference. People spend less because they want less: the pace slows, possessions stop tempting, the familiar gets comfortable. The decline is then a fact of nature to build into the plan, and a constant need over-provisions. The other reading is constraint. Part of the observed decline is endured, by retirees who tighten their belts out of fear of running short (The psychology of spending: why spending it is the hard part) or because their income was never enough: underconsumption, and it is documented. Extrapolate that decline and you are planning other people's deprivation. The practitioner's synthesis, Blanchett's own, is that both are true. The preference decline is real, but gentler than the decline you observe. Hence a prudent model: a slope of −0.5 to −1% a year in real terms, applied to discretionary spending only (the floor does not decline, and health care pushes it the other way, Tracking inflation: the indexes, and yours). Two settings carry that into the plan. The "Real spending drift /yr" control sets the net slope of the need, positive or negative. The retirement smile shapes that need by age along Blanchett's curve. A full simulator offers both; without one, a budget with dated tiers does the same job by hand.

Now the late upturn, from the budget side. The tail of the smile merges two different things. One is the steady health-care drift, premiums and the out-of-pocket share, which climbs with age and never stops (US health coverage and Social Security: the two ends of the gap). The other is the possible long-term care shock, a residential facility running a five-figure bill every year on top of whatever is covered, with roughly a one-in-two chance that one member of a couple faces it by 85. This book keeps the two apart. The health drift belongs in the running budget, year after year. The shock goes into a reserve of its own (the house, the late-life slice). Never both at once, because provisioning the shock as current spending oversizes the entire plan for an event that is only possible.

Die With Zero: the reasonable version§

Bill Perkins's book (2020) sharpened the argument with a simple thesis. Dying rich is a planning failure, because money left unspent is life not lived, or generosity postponed until it no longer helps. Two of his ideas are worth more than the provocation in the title. The first is the time bucket. Experiences come with a date attached, because every wish has a physiological window: the trek at 50, the motorcycle at 55, long-haul travel before 75. Healthy life expectancy, roughly 64 or 65, is the statistic that bites here (The one-more-year syndrome). So the wish list gets dated. And anything marked "before 60" gets funded now, not "one day", because postponing forever is cancelling in disguise. The second idea is the memory dividend. An experience taken early pays out in memory for the rest of your life: the trip at 50 gets re-savored for thirty years, the same trip at 80 far less. Discounting therefore favors spending early, the exact mirror image of the case for saving.

The reasonable version comes with three guardrails, because the title taken literally contradicts this book. The zero you aim at is not zero: the longevity tail and long-term care each demand their reserve. The working version is ABW with a prudent bequest and a prudent horizon (Amortization-based withdrawal (ABW/TPAW): the actuarial approach), which "dies" precisely at the reserve you chose rather than at zero. Giving while you are alive beats an accidental bequest by a wide margin, since money reaching an heir at 30 is worth more than money reaching them at 60, and not only on tax grounds. And the thesis applies to the surplus above a sound plan. Perkins is talking to over-savers, who are most of the people who read this kind of book (The psychology of spending: why spending it is the hard part). A stretched plan finds no absolution here (Flexibility: myth and reality (what it can really absorb)).

🔬 Front-loading an early retirement

Put the smile, the time buckets and the shape of an early plan together, and a strong conclusion falls out for anyone retiring at 45 or 50. The years from 45 to 65 are three things at once: the go-go years, the window for demanding experiences; the uncovered phase, where the portfolio funds everything (Horizon, life expectancy, and 50-year retirements); and the fragile window (Sequence of returns risk: the retiree's real enemy). That is the central conflict of sizing a plan, where the heart of the life sits on the heart of the risk.

There are three honest ways out.

A budget with two dated tiers: a constant base, plus an explicitly dated "active decade" envelope loaded onto the front, $5k to $10k a year more from 45 to 60, paid for by the downslope of the years that follow (the retirement smile and the ABW slope model exactly that trade).
Priority to the experiences that cost little money but have to be taken while the body still cooperates, since time is precisely what early retirement bought (the three-week hike costs less than the cruise and has the same window).
Accepting the trade for what it is. Front-loading costs safety, because early withdrawals count double against the sequence. It gets paid for by the rest of the plan: a slightly lower initial rate, and flexibility written down on the active envelope. That envelope is the first thing cut the day things turn red, and that is exactly as it should be (When to worry, and when to let it ride).

Budget engineering: spending well§

The final skill comes down to four practices. Budget in dated tiers. A floor (constant, plus the health drift), a comfort layer (where the smile applies) and a dated active envelope (front-loaded, cut first), three lines of the template (Building your plan step by step). Plan the big items. The car, the roof, the family weddings: date them and fund them, with a ladder for the ones dated far out (Bond ladders (and the ladder of linkers)), instead of absorbing them as jolts that set the warning lights flashing. Spending is judged on the average, which only works if the lumps were expected (When to worry, and when to let it ride). Spend where the research says happiness is. It fits in one usable line: experiences beat possessions, because hedonic adaptation spares memories (Meaning, identity, structure: life after work); buying time back beats almost everything, so delegate what you hate; and generosity returns more than it costs. Allocate the mandatory fun budget (The psychology of spending: why spending it is the hard part) along those three findings. Track lightly. Spending gets recorded at the annual review (The annual review: the retiree's checklist). A retiree who logs every receipt has missed the point of the whole project. An aggregator and an annual average are enough, because a budget is an instrument of freedom, not of surveillance.

🧮 Aline and Thomas re-profile their budget

Their v1 plan said "$54,000, constant" (Building your plan step by step). The review at 50 re-profiles it with this chapter in hand. The floor moves to $41,000 (constant, plus a 0.4% health drift). Comfort holds at $49,000 with the smile profile on, Blanchett's gentle slope. The active envelope adds an explicit $7,000 a year until 62: the Asia trip, dated; the mountains while the knees hold; the wish list sorted into time buckets one rainy Sunday. That makes $56,000 for the next ten years, declining after that. The present value of the whole need lands 6% below the flat plan. The simulation confirms it, with central-case failure barely moved (4.7%), because front-loading costs in sequence what the smile gives back in discounting. But the life has changed shape. The 2035 trip is booked. The active envelope is the first line cut if the plan turns red, and that is written down. And the gift to the children moves ten years earlier. Same money, better dated. That is the whole chapter.

The essentials§

Real spending traces a smile: down 1 to 2% a year in real terms from 65 to 85, with a late upturn (health care, long-term care). A constant need over-provisions by 10 to 20% in present value. Model the slope, prudently, −0.5 to −1% on discretionary spending only, with the floor drifting the other way. Two settings are enough, an annual real drift and the retirement smile.
The late upturn splits in two. The health drift goes into the budget, the long-term care shock into a reserve of its own (the house). Never both as current spending.
Die With Zero, reasonable version. Experiences come dated (time buckets, and anything marked "before 60" gets funded now), the memory dividend discounts in favor of the early years, and giving while you are alive beats an accidental bequest. The thesis applies to the surplus above a sound plan, never as absolution for a stretched one.
Early retirement lives the central conflict, where the go-go years are also the fragile window. The answer is a budget in dated tiers, with an active envelope that is dated, front-loaded and first to be cut.
Spending well is a skill. Experiences over possessions, time bought back, generosity, big items dated and funded, light tracking. A budget is an instrument of freedom.

Going further§

David Blanchett, "Estimating the True Cost of Retirement" (2013): the smile, the primary source.
Bill Perkins, Die With Zero (2020): time buckets and the memory dividend, to be read with the guardrails above. ERN's critique (Part 60) as a counterweight (ERN's Safe Withdrawal Rate series: a reader's guide).
Dunn & Norton, Happy Money: the research on buying happiness, condensed.
In this book: The psychology of spending: why spending it is the hard part (daring to spend), Tracking inflation: the indexes, and yours (the health drift and how to set it), The one-more-year syndrome (dated years, seen from the work side).