Background: J.P. Morgan analyzed de-identified Chase data and found three key retirement-related spending patterns: the spending curve, the spending spike, and spending volatility. This Research Minute explores each pattern and provides actionable strategies for employers to effectively address the associated financial challenges.

Findings: This research identified three key findings, outlined below, along with their implications.

Spending curve: The long-term trend of declining spending results in retirees’ inflation-adjusted spending lagging inflation by about 1% a year on average. This is generally consistent across wealth levels, although wealthier households with estimated investable assets above $1 million tend to decrease their spending faster and have an uptick in spending at the end, which may be related to spending on long-term care. Target amounts to be saved by employees prior to retirement should take this spending behavior into account.

Spending surge: At least one person in a household working longer can help that household spend more temporarily, but it would be better for them and their employer if they could retire on their own terms if they no longer want to work. This is most evident in households with who earn $90k or less annually. To help combat this problem, employers may want to assist their employees with their whole

financial picture, including emergency savings and debt management.

Spending volatility in retirement: Spending fluctuations may add to sequence of return risk at the beginning of retirement. This risk is heightened when participants are taking withdrawals from their accounts early in retirement coincidentally with a market correction. Even if average returns over their retirement are high, bad returns early may lead a significant erosion of their account balance. Consequently, employers should consider if their QDIA is built to adjust market exposure near retirement to balance return and sequence of return risk, provide some guaranteed income for stable expenses in retirement and ensure retirees have liquidity for variable expenses.

Source: J.P. Morgan Asset Management Three New Spending Surprises

Bottom line: Overall, our findings highlight three retirement patterns, which are not always anticipated by retirement product and service providers. These patterns underscore the financial complexities retirees face, particularly for those delaying full retirement due to debt and insufficient savings and for retirees who experience considerable variability in their spending.

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