Retirement spending does not stay flat. Financial planners have long described it in three phases: the go-go years, when new retirees travel and spend on the lifestyle they postponed; the slow-go years, when activity tapers and spending stabilizes; and the no-go years, when healthcare and housing services dominate a shrinking budget. Most household retirement plans project a single annual number and inflate it by 2% or 3% a year. The data on what Americans actually pay for suggests that this approach captures only the first phase.
The Baseline: The Average Budget Starts From
The Bureau of Labor Statistics puts average annual expenditures for all consumer units at $78,535 in 2024, up from $77,280 in 2023 and $72,973 in 2022. That is the number most planning tools anchor to. It is also the number that quietly hides the composition problem: services already make up 68.7% of personal consumption, and services are where retirement inflation actually lives.
The Social Security cost-of-living adjustment for 2026 was set at 2.8%. Headline PCE inflation came in at 4.1% year-over-year in May 2026, with core PCE at 3.4%. A benefit adjustment that trails headline inflation by more than a percentage point does not compound in the retiree’s favor, and the gap widens further in the categories that matter most later in retirement.
Phase One: The Go-Go Years Get Inflated Away
Early retirement spending concentrates on travel, dining, and leisure. Those categories show up in the services line, where prices rose 3.8% year-over-year in May 2026, faster than the overall COLA. Food services alone reached $1,538.3 billion in annualized spending, and recreation reached $862.3 billion. Energy prices, which drive travel costs, rose 24.3% year-over-year after swinging from -0.9% in January 2026. A retiree who budgeted a fixed dollar amount for travel in year one is likely already short in year two.
Consumer sentiment reflects the squeeze. The University of Michigan index sat at 44.8 in May 2026, down from 61.7 in July 2025 and well below the 80 threshold that separates neutral from pessimistic. Retirees drawing down assets in a pessimistic-sentiment environment tend to pull back on discretionary spending sooner than the classic go-go phase would predict, which shortens phase one for many households before the plan ever accounted for it.
Phase Two: Where the Plan Usually Breaks
The slow-go phase is more of a substitution than a budget cut. Travel and dining fall, but housing services do not. Housing PCE reached $3,950.3 billion in May 2026, up from $3,782.9 billion a year earlier. Property taxes, insurance, and maintenance increase with the services index, regardless of whether the retiree travels. The national savings rate has fallen to 3.9% in Q1 2026 from 6.2% in Q1 2024, which tells the same story from the working side: households are consuming more of what they earn, leaving thinner reserves for the transition years.
The 10-year Treasury yield closed at 4.65% on July 27, 2026, near its 12-month high of 4.71%. Retirees building bond ladders during this phase can lock in real income above inflation for the first time in years, which is the mechanical bridge from the go-go asset-drawdown mode to the no-go fixed-income mode.
Phase Three: Healthcare Is the Real Line Item
Healthcare PCE reached $3.72 trillion in May 2026, up from $3.51 trillion a year earlier. Medicare transfer receipts followed the same curve, rising to $1.30 trillion in Q1 2026 from $1.07 trillion in Q1 2024. The program covers more than it did two years ago, and it still does not cover long-term care, dental work, or most in-home support.
Social Security benefits reached $1,630.3 billion in Q1 2026, and total transfer receipts now account for 19.1% of personal income. For a household in the no-go phase, that share is closer to the entire budget. When healthcare services increase faster than COLA, the gap becomes a real out-of-pocket cost.
What the Data Actually Suggests
The data implies three inflation rates rather than one. Travel and leisure tracks the services index near 3.8%; housing tracks somewhere between core and services, and healthcare has historically outpaced both. Spending patterns show a step-down in discretionary outlays around age 75, and a step-up in medical outlays shortly after. The current 4.7% 10-year yield offers real income above inflation for retirees building phase-three portfolios. The three-phase framework describes what the spending data has already shown.
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