Designing a Realistic Retirement Portfolio Based on Actual Spending Patterns
I recently came across a Fidelity chart on average annual household spending by age, and it sparked a big idea: why not use this kind of real-world data to create retirement portfolios that match how people actually spend in retirement?
Most retirement planning focuses on fixed withdrawal rates and arbitrary investment goals. But what if we looked at how spending declines with age and adjusted our investment needs accordingly?
Declining Spending with Age
The Fidelity data shows a clear pattern: as people age, their spending generally decreases. This makes sense. Early retirement years are typically more active with travel and hobbies. Later on, lifestyle tends to slow down.
So, today I’m building retirement portfolios for different retirement ages: 55, 60, 65, and 70. I’ll use average spending patterns and Social Security benefit assumptions to see what kind of nest egg you might really need.
Why Social Security Timing Matters
When you claim Social Security makes a huge difference. Claiming early at 62 reduces your benefit, while delaying until 70 boosts it significantly. For these models, I assumed average two-person household benefits ranging from $1,200/month at age 62 to $2,100/month at 70.
Let’s walk through each scenario.
Retiring at 55, Claiming Social Security at 62
This requires a bridge strategy to cover the seven years before benefits begin. I divided retirement into four phases:
- Phase 1 (55-61): Low-risk investments with 3% withdrawal rate → ~$600,000
- Phase 2 (62-64): 5% withdrawal rate → ~$134,000
- Phase 3 (65-74): Spending tapers → ~$160,000
- Phase 4 (75+): Further decline → ~$73,000
Total needed: ~$965,000
Retiring at 60, Claiming Social Security at 62
- Phase 1: ~$188,000
- Phase 2: ~$163,000
- Phase 3: ~$224,000
- Phase 4: ~$102,000
Total needed: ~$677,000
Retiring at 60, Claiming Social Security at 67
Here you’ll need to cover seven years without any Social Security:
- Phase 1: ~$752,000
- After age 67: Social Security kicks in and eases portfolio pressure
Total needed: ~$752,000
Retiring at 65, Claiming at 67
- Phase 1: ~$147,000
- Phase 2: ~$176,000
- Phase 3: ~$72,000
Total needed: Just under $400,000
Retiring at 70, Claiming at 70
- Phase 1: ~$79,000
- Phase 2: ~$25,000
Total needed: Just over $100,000
Risks to Consider
Even with realistic planning, risks remain:
- Lifestyle inflation if retiring early
- Living longer than expected
- Healthcare costs rising
- Market downturns in early retirement
- Higher inflation than projected
That’s why I recommend maintaining a strong cash buffer to weather short-term shocks.
Final Thoughts
These numbers are averages and estimates—not personalized advice. Your lifestyle, spending habits, and health all matter when planning for retirement. Run your own numbers or work with a professional to ensure your retirement plan fits you.
If you found this helpful, please like, subscribe, and leave a comment with your retirement age goal. Let’s keep the conversation going!
All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.
