The First Three Years Are Bumpier Than Your Spreadsheet Thinks

Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.

Cheryl is 57, has 31 years in PERS Plan 2 with a county public works department, and she brought a spreadsheet to our first call.

​One tab. A single number for annual spending. Then 35 rows of that number growing 3% a year until she turns 92.
She built it herself over a couple of weekends, and she should be proud of it. Most people never get that far.

But when I asked what she actually spent last year, she said something I hear all the time. “Roughly that. Except we put on a new roof, so that year was weird.”

Every year is weird. That's the part a single row can't hold.

Six in ten

J.P. Morgan had a way to check. They pulled anonymized transaction data from more than 280,000 Chase households and watched what left the accounts1.

Then they compared each household's spending in the 12 months before retirement to each of the first three years after.

Six in ten landed in what the researchers called volatile spending. Their spending temporarily rose or fell by 20% or more compared to that final working year1.

Only 18% stayed within 20% of their old number all three years1. The researchers nicknamed that group the Steady Eddies, and they're the only ones who spend the way a plan assumes.

It doesn't calm down as fast as you'd hope. Among retirees between 75 and 80, about half were still seeing volatility in their spending1.

Cheryl's average was probably fine. The shape was the problem.

Nobody clocks out on a Friday and never works again

The finding that surprised me most had nothing to do with spending.

More than half of the households in the study, 53%, didn't retire all at once1. One spouse stopped and the other kept going. Or someone left a career and picked up part-time work while a pension started.

I see that constantly with public employees, and Cheryl is one of them. Her husband is staying another two years.
The study also found that the post-retirement spending surge showed up in households with pre-retirement income under $150,000 and disappeared entirely above that1. Cheryl and her husband are above that line, so I'm not going to sit on a Zoom call and warn her she's about to blow through her budget.

What I'd watch for her is the lumpiness.

The bill that climbs faster than your COLA

Then there's healthcare, which runs on a different clock than everything else.

If Cheryl retires next year at 58, she has seven years before Medicare. If she carries PEBB retiree coverage, the 2026 rate for Uniform Medical Plan Classic covering her and her husband, neither of them on Medicare, is $1,935.11 a month2. That's about $23,200 a year before dental, vision, deductibles, or anything she uses.

It's one of the largest line items in her plan, and it doesn't behave like the rest of her budget.

For planning purposes, J.P. Morgan suggests assuming roughly 6% annual increases on Medicare-related costs1. Healthcare has a long history of outrunning general inflation.

Her PERS 2 pension carries a cost-of-living adjustment capped at 3% a year3. When inflation runs higher than that, the excess gets banked for a future year when inflation comes in lower3.

The biggest expense of her early retirement can climb at roughly twice the rate of the only automatic raise her pension will ever give her. That gap doesn't appear anywhere in a spreadsheet built on one growth rate.

What we changed

Her spending number barely moved. The average was close.

What we did was pull the lumps out of the average and give them their own lines. The truck is on borrowed time. Her daughter's wedding is coming whether it's in the plan or not. And there's the trip to Ireland she's been putting off since that daughter was in high school.

Each one got a year and a dollar amount instead of being smeared across three decades at 3%.

Then we built liquidity to cover them.

Because the danger in a year where you spend $40,000 more than planned isn't the $40,000. It's selling investments to fund it while the market is down 18%. That's how a temporary spending bump turns into a permanent loss, and it does the most damage in the first few years, when the balance is highest and there's the least time to recover.

Start with your bank statements

If you're within five years of retiring, give this an hour.

Pull your last three years of real spending. Whatever cleared the account, however uncomfortable that number turns out to be.

Then write down every expense over $5,000 you expect in your first five years of retirement, with the year you expect it.
If your plan can absorb all of them landing in a bad market, you have a plan. If it only works when they land in a good one, you have a forecast.

Sources

​1. J.P. Morgan Asset Management. "Three new spending surprises: Additional insights into retirement spending behaviors." 2024. https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/insights/retirement-insights/ri-3-spend.pdf
2. Washington State Health Care Authority. "2026 PEBB Retiree Monthly Premiums, Effective January 1, 2026." https://www.hca.wa.gov/assets/pebb/51-0275-retiree-monthly-premiums-2026.pdf
3. Washington State Department of Retirement Systems. "COLA: Cost of Living Adjustment." https://www.drs.wa.gov/life/retired/cola/
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-Seth Deal