Rethinking Retirement Income

How real Spending Patterns challenge Traditional Retirement Income Planning  

By Steve Lowrie, CFA

Special to Financial Independence Hub

Here’s a contrarian thought.

When most people imagine retirement, they picture steady cash flow from their investments to support their lifestyle.

The common assumption is that they’ll preserve their financial nest egg and live off the growth” drawing a consistent amount each year while keeping the principal largely intact.

But there are actually three broad approaches. At one end, some plan to spend their entire portfolio over their expected lifetime (as one client joked, “I want my last cheque to bounce.”  At the other end is the idea of preserving capital entirely. Most people, in practice, end up somewhere in between.

But what if that assumption is only part of the story?

The reality is that real-life retirement spending isn’t flat. It fluctuates unevenly and unexpectedly over time. And those patterns can have a big impact on your retirement income strategy.

Retirement Planning has changed. Have you?

For decades, retirement planning has focused on Saving: building a nest egg, maximizing RRSPs, and making the most of tax-advantaged accounts.

But the real challenge begins after you stop working. Then, the question becomes:

How do I turn my savings into reliable, lasting income?

This is where traditional models often fall short. Most assume spending stays constant throughout retirement. But as recent research from J.P. Morgan Asset Management shows, that’s not how real retirees actually spend.

For more on how conventional rules can mislead, see Debunking Retirement Financial “Rules.”

What the Data shows

J.P. Morgan studied anonymized spending data from more than 5 million U.S. households, offering a detailed picture of how retirees actually spend in retirement. These findings closely align with what I’ve observed over 30 years of working with Canadian clients.

Three key Retirement Spending patterns:

• Spending Surge: Many retirees experience a spike in spending right around the time they retire. This is often due to lifestyle changes and delayed goals coming to fruition in the early retirement years, like travel, home upgrades, or helping adult children.
• Spending Curve: Over time, overall spending tends to decline. For example, households with investable assets between $250,000 and $750,000 saw an average inflation-adjusted spending decrease of about 1.65% annually through retirement.
• Spending Volatility: Perhaps most important, spending is anything but steady. According to J.P. Morgan’s 2025 Guide to Retirement, 60% of retirees saw their expenses fluctuate by 20% or more in the first three years of retirement. And this volatility often continues well into later years.

These findings show that retirement income strategies need to be flexible enough to accommodate spikes, declines, and everything in between.

Why it matters

Most financial plans assume a flat, inflation-adjusted income for 25 to 30 years. That’s a very good place to start. However, based on both this research and my practical experience observing hundreds of client habits over three decades, here’s what can happen:

• You over-save early, delaying retirement unnecessarily
• You under-spend during healthy years, missing out on the freedom you’ve earned
• You get caught off guard by spending spikes, leading to early withdrawals or tax surprises

J.P. Morgan’s data shows retirees typically need about 92% of pre-retirement income at age 65, but just 70% by age 85. That is a significant shift and a reminder of why you want healthy exposure to equities, which is the only asset class that has historically given the best chance of outpacing inflation over the long run.

A better way to Plan for Retirement Income

Here are a few ways to build a more adaptable, evidence-based retirement plan:

1. Plan for flexibility

Nearly half of retirees leave work earlier than expected, often due to health or job disruptions. Your retirement income plan should be able to adjust, not just in timing but in structure.

2. Diversify income sources

Draw strategically from taxable accounts, RRSPs, tax-free savings accounts, and corporate accounts to smooth cash flow and control taxes. This is especially important before you are required to convert your RRSP to a RRIF in the year you turn age 71 and begin taking mandatory RRIF withdrawals each year.

Read more about tax efficient income draw in Retirement Decumulation Strategies.

3. Maintain a lifestyle reserve

Rather than chasing guaranteed income products, make sure you have a well-thought-out lifestyle reserve. It gives you financial flexibility in retirement and helps protect against the need to withdraw from your longer-term assets such as equities during downturns.

Read more about this how you can incorporate lifestyle reserve in your retirement strategy: What is the Difference Between a Lifestyle Reserve and an Emergency Fund / Financial Cushion?

4. Consolidate for clarity

Having everything in one place with one advisor and one overall strategy makes it easier to manage required RRIF withdrawals, coordinate tax planning, and make smart decisions about income and asset allocation.

5. Prepare for surprises

Spending spikes are real. Having a separate emergency fund, perhaps in a bank account, a cash or a lifestyle reserve within your investment portfolio (preferably outside of your RRSP/RRIF) or perhaps access to a HELOC (home equity line of credit), helps ensure you won’t have to sell any of your long-term investments during a market drawdown or correction.

The Retirement Income Bottom Line

Retirement isn’t just about hitting a savings goal. It’s about managing income, taxes, and risk throughout a shifting landscape. The right plan balances structure with flexibility, built on how people actually spend, not how we assume they will.

If your plan still relies on flat-line projections (once again, that’s always a good place to start) or hasn’t been updated to reflect real-life spending volatility, it may be time for a rethink.

Want to build a retirement income strategy that reflects how retirement really works? Let’s talk.