Why Retirement Spending Needs a Rethink: JP Morgan Challenges the 4% Rule

For decades, traditional retirement planning models have relied on the “4% rule” and blanket inflation adjustments to guide how much people should save and spend in retirement. But new research from JP Morgan, analyzing data from over five million Chase households, is upending that thinking—and encouraging retirees to live more freely.

Retirement Spending Patterns and JP Morgan’s Research Insights
JP Morgan found that retirees don’t spend according to fixed inflation-based models. Instead, real-world retiree spending only grows at about 1.9% annually during the early years of retirement, not 3% as traditional models assume. By age 95, most retirees spend $90,000 annually, not the $146,000 projected by inflation-adjusted models—a $56,000 difference that can significantly affect retirement planning. The takeaway? Many retirees are oversaving and underspending, potentially missing out on quality-of-life experiences.

Critical Spending Periods Around Retirement
One key insight is the spending surge that occurs from two years before to three years after retirement, driven by travel, home renovations, and leisure. This 30% spike in spending typically stabilizes later, which underscores the need for flexible planning: allocate more for early retirement, and taper down as lifestyle needs change.

Sequence of Returns Risk and Portfolio Viability
JP Morgan also addressed sequence of returns risk—the danger of poor market performance early in retirement. Their comparison of two retirees, Mrs. Green and Mrs. Red, shows how early losses can devastate a portfolio, even if long-term returns are identical. A poor start forces retirees to withdraw at depressed values, accelerating depletion. A robust and flexible withdrawal strategy can help mitigate this.

Spending Fluctuations and Behavioral Categories
The idea that retirees spend in a linear, predictable way is outdated. JP Morgan categorized retirees into six spending personas—from “steady eddies” to “roller coasters.” In fact, 56% of retirees experience major spending swings, proving that cookie-cutter models don’t reflect real behavior.

Retirement Spending Phases: Go-Go, Slow-Go, and No-Go Years
JP Morgan affirmed the familiar “three-phase” retirement structure:

• Go-Go Years (65–74): High activity and discretionary spending, growing at 1.9% annually.
• Slow-Go Years (75–84): Activity slows, spending increases drop to 0.5%.
• No-Go Years (85+): Spending declines slightly (-0.5%), with healthcare becoming the dominant expense.

Recognizing these phases helps retirees budget more effectively and avoid underutilizing their funds.

Comparison of CPI-Based Models vs. Category-Based Models
Most advisors still use CPI-based models that assume a fixed 3% inflation rate across all categories. But category-based models—those that account for different spending trends—show retirees need up to 26% less in savings than CPI-based models suggest. For example, while CPI models recommend $1.2–$2 million by age 95, real-world spending patterns justify only $872,000.

Critique of the 4% Rule and Oversaving
The 4% rule, created to ensure retirees don’t outlive their money, may be overly conservative. JP Morgan’s data shows that 90–95% of retirees die with more money than they started with, often because they fear running out of money. This leads to unnecessary sacrifices in lifestyle. A dynamic withdrawal strategy, based on actual spending and market performance, offers better alignment with reality—and more room for enjoyment.

Conclusion: Live Better with Realistic, Data-Driven Retirement Planning
JP Morgan’s research doesn’t just challenge outdated models—it empowers retirees. By aligning your retirement plan with how people actually spend, you can worry less about running out of money and focus more on enjoying life. Dynamic strategies lead to smarter savings, better portfolio sustainability, and a more fulfilling retirement.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.