Retirement planning is often built on assumptions – how long we will work, how much we will spend and how long our assets will last. However, our research reveals a significant gap between expectations and reality in nearly every aspect of retirement spending.

To gain a deeper understanding, Capital Group¹ surveyed investors across all retirement stages, from pre-retirees (50–64) to mature retirees (79+). Our findings reveal that pre-retirees can overestimate their ability to manage spending and extend their working years as a result, while retirees can face unexpected financial changes.

By focusing on the lived experiences of retirees, especially those in later stages, we explore evolving spending behaviors; what retirees wish they had known; and actionable strategies financial professionals can use to help guide their clients toward more informed retirement decisions. 

The retirement timing gap

Uncertainty is a constant in life, and retirement planning is no exception. Our research found that on average, pre-retirees expect to retire about four years later than the actual retirement age of those already retired, suggesting that retirement often comes sooner than planned. Indeed, our study found that there's a significant gap between when workers expect to retire and when retirees actually do. While active workers report a median expected retirement age of 66, current retirees say they retired at a median age of 62.¹

Notably, more retirees left the workforce earlier than expected due to unforeseen challenges rather than positive circumstances. According to our study, factors such as job loss, health issues, family responsibilities and caregiving needs were among the primary drivers of early retirement. This highlights a critical gap in retirement planning, as many individuals may overestimate their ability to continue working as planned. As might be expected, workers who lack confidence in their financial security for retirement tend to plan for a later retirement than those who feel secure. For example, according to a recent Employee Benefit Research Institute (EBRI) survey, 50% of workers who are not confident say they either won’t retire or are unsure when they will, compared to just 20% of those who are very confident.²

Building flexibility into a retirement plan and preparing for the unexpected can help mitigate potential disruptions. Having a backup plan in place can provide financial security when retirement doesn’t unfold as originally envisioned. 

The role of Social Security and protected lifetime income

Social Security remains the primary income source for most retirees, with 97% of pre-retirees identifying it as a major component of their financial plan. Our research reveals that four out of five individuals aged 62 and over have already claimed benefits, often earlier than planned — typically at age 64 instead of 67.¹

Meanwhile, we found some retirees delay claiming Social Security to potentially maximize benefits, viewing Social Security as a form of “longevity insurance” while relying on other income sources.³

While some retirees delay claiming to maximize benefits, Social Security alone might not be enough to cover essential expenses. And with access to pensions declining, fewer retirees will be able to rely on them for income, increasing the need for additional lifetime income. By creating sustainable and predictable income streams, retirees can build a foundation that helps adapt to life’s uncertainties and support their evolving spending needs over time.

Retirement spending evolution

Retirement timing and Social Security decisions don’t always go as planned, and retirement spending patterns often evolve in unexpected ways. While our research shows that only 16% of retirees report a decrease in spending,¹ a well-documented trend referred to as "the retirement spending smile" suggests that spending tends to start high in the early years of retirement, decline in the middle years and rise again later in life.⁴ This pattern highlights the importance of adapting financial strategies over time.
 

In early retirement, many people initially struggle to shift from saving to spending but tend to prioritize travel and leisure once they do, which leads to increased discretionary spending. Travel slows in mid-retirement, and spending becomes more focused on essentials such as housing and day-to-day expenses.⁵
 

Our research found that mature retirees increasingly worry about health care costs, which may cause them to shift financial priorities to protect assets for potential medical expenses.
 

This evolving spending pattern underscores the need for flexible retirement planning. Just as Social Security decisions affect long-term financial security, accounting for shifting expenses, particularly health care, may help retirees maintain financial stability throughout all stages of retirement. 

Guiding clients through retirement income and spending

Our research reveals critical gaps between retirement expectations and reality, highlighting the need for Social Security planning, protected lifetime income and strategic spending from retirement accounts. Financial professionals can help clients navigate these challenges in several ways:

• Plan for the unexpected. Many retirees leave the workforce earlier than planned. Help clients build flexible income strategies and maintain cash reserves to anticipate needs.
  
  
• Optimize Social Security timing. Claiming Social Security earlier than planned can impact lifetime benefits. Offer guidance on when to access Social Security as part of an overall retirement savings plan.
  
  
• Incorporate protected lifetime income. Social Security alone may not be enough. Consider adding annuities and other protected lifetime income solutions to clients’ retirement plans to help provide stability and longevity protection.
  
  
• Align spending with real-world behavior. Encourage open conversations about priorities, budgeting and adjusting spending as retirement evolves.
  
  
• Build inflation and market resilience strategies. Help clients preserve assets by balancing withdrawals, maintaining cash reserves and managing volatility.

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