Retirement spending is dynamic, with 60% of new retirees seeing their annual expenses fluctuate by more than 20% in the first three years, according to the J.P. Morgan Asset Management report, “Retirement by the Numbers.”

“This means that compared to periods just before retirement, they see a 20% jump—up or down—in their annual spending compared to that baseline right before they retire,” Michael Conrath, J.P. Morgan Asset Management’s chief retirement strategist wrote in an email.

Older retirees, aged 75 to 80, experience similar spending fluctuations, with 54% facing the same level of year-to-year volatility.

Flexible retirement income solutions that can adapt to spending shocks and provide stability when expenses shift unexpectedly throughout retirement will be essential, according to the report. For those not yet retired, the report found that a 1% increase in contributions starting at age 25 can fund nine years of average Medicare-related expenses.

“The 1% difference can really make a meaningful difference and help Americans retire with dignity,” Conrath says. “Medicare costs inflate at 6% a year, so that can be a moving target for retirees. Also, keep in mind that people tend to use more health care as they age, so that needs to be part of the strategy.”

A Decline in Spending

The J.P. Morgan report included a table based on patterns drawn from more than 4.7 million households, including “select internal data from JPMorgan Chase Bank N.A.” For partially and fully retired households, J.P. Morgan found the average yearly spend for retirees aged 60 to 64 is $75,630, compared with $51,920 for retirees 90 to 94.

Average total spending starts higher early in retirement and steadily trends down by 5% to 8% every 5 years, leveling off as retirees reach their late 80s and 90s.

“When we look at de-identified Chase household data, people do not increase their spending in line with inflation throughout retirement,” Conrath says.

With spending patterns fluctuating drastically year-to-year during retirement, the report noted that this underscores the need for flexible retirement income solutions that can adapt to spending shocks and provide stability when expenses unexpectedly shift.

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