Are you guilty of spending too little ?

[braumeister]

Gobsmacked? First time I've seen the expression. I love the word and will use it sometime.

Yes, it's a wonderful word. Quite common across the pond, not so much here.

 

[athena53]

I also have vivid memories of my grandparents who were considered well off when they retired in the early 60s. They had a generous non-COLA pension and Social Security, and a little savings, and everyone thought they were sitting pretty. But that non-COLA pension got smaller every year due to inflation, and my GF was a financial basket case by the time he died.

Intellectually, I know that similar inflation rates are not likely again, but emotionally I have trouble believing that.

It's not just inflation. It's the increased cost of technology and advances in medicine. The stripped-down VW Beetle your grandparents could buy in the 1960s doesn't exist anymore. A new car now HAS to have multiple catalytic converters, air bags, on-board computers and (probably) A/C, power windows, power steering, power brakes. The cost of hospital stays has far outpaced inflation due to all the complex equipment, the proliferation of specialists, and expensive prescriptions. State of the art dental care and hearing aids were cheap back then. Now much more is possible but it's gonna cost you.

So, I'm anticipating similar advances as I age. I don't know what they'll be, but they'll certainly happen.

 

[Jack_Pine]

Personnally I think I have been worried too much about the odds of running out of money against the odds of running out of life itself.
Someon on this board gave my that epiphany moment when they pointed out they had a 100% chance of success on FIRECALC to age 95 and an 18% chance of living that long. One must find balance between the two and that is the tricky part of retirement to me.

This has stuck with me as well. We have no kids and don't care what is left. However, can't plan down to writing last check for the funeral.....too bad.

 

[unclemick]

Ya gotta have Pals to hep ya. ER age 50 - 71 I varied 0 to 6% withdrawal mostly too frugal.

Now my RMD Pals (shoulda Rothed more) at the IRS are gonna hep me!



heh heh heh - what!! take out early and pay taxes!!!. Just couldn't bring myself to spend no matter what the math said. I suppose it's good to have enough to be stupid at times.

 

[Eagle43]

Guilty as charged. I'm too frugal (tightwad). Grew up poor and it's hard to get out of the expectation that something will go wrong to mess everything up. Like Unclemick, I should have put more in Roth accounts, because the government doesn't mind taking their share. Retired for 10 years now, and using RMD (first time last year) as my withdrawal rate. But I still gotta spend it. I have friends telling me not to be the richest man in the graveyard.

 

[rodi]

No argument against those who say we're spending too little or retired too late, or whatever. There are very good points in those comments.

But in my defense, I believe that the reason for this phenomenon, for me and many others, is simply down to one factor. We were gobsmacked by the incredible inflation rates of the 1970s and 80s.

I also have vivid memories of my grandparents who were considered well off when they retired in the early 60s. They had a generous non-COLA pension and Social Security, and a little savings, and everyone thought they were sitting pretty. But that non-COLA pension got smaller every year due to inflation, and my GF was a financial basket case by the time he died.

Intellectually, I know that similar inflation rates are not likely again, but emotionally I have trouble believing that.

I saw this too with my grandparents. My grandmother event took a job in her 60's ("shop girl" at a nice shop in La Jolla) because the pension wasn't keeping up with the rent increases. She hadn't worked since she'd gotten married 40+ years earlier. All due to inflation of the 70's. It had an impact on me.

 

[Al in Ohio]

That article is nuts.

An expensive mattress? That's one of the things you should splurge on? (Don't get me wrong - if your mattress is crappy, replace it - but you can get very nice mattresses that are as good as the name brand ones, for a lot less. My sister just replaced hers - top of the line materials, totally researched what she wanted - and got a local furniture store brand that is equivalent to the big name brands for half the cost.)

As someone still new to retirement - so nervous about the budget... reading this article does not make me want to spend more. Especially when they suggest a 4-6% WR.

You need to research a sleep number bed with full tilt control. If you have or get acid reflux it's worth every penny. And no those nice non name brand mattresses are not even close. Quality mattresses are like good books. You can't just judge them by their cover.


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[RobLJ]

After reading all of this, I'm going out to buy a new car this weekend. Anybody want to by a heavily used VW diesel?

We bought a new Subaru with cash in summer in anticipation of the retirement phase--I was afraid I wouldn't be willing to buy one after retirement. Planning on keeping it a long time, to be sure.
I don't think a 4% rate is imprudent, particularly if you are willing not to increase for inflation for several years when stocks go down and have some cash. Balancing the risk of pinching pennies until they scream for a 110% Firecalc success versus the risk of leaving a 3-4x larger estate to the kids seems--to me--the goal of a sensible retirement. YMMV.
(We have slack to fund travel and other non-essentials, and I'm only semi-retiring next year, so that's easy to post. After DW retires, maybe I'll start eating SPAM.)

 

[Mulligan]

You need to research a sleep number bed with full tilt control. If you have or get acid reflux it's worth every penny. And no those nice non name brand mattresses are not even close. Quality mattresses are like good books. You can't just judge them by their cover.


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I don't think I will go as far as buying a sleep number, but I am due for a new king size and I will not go cheap on this. Since I sleep/doze 30-40% of my life now in bed, I want high quality... I had been pretty miserly my first few years in retirement trying to build up a safer reserve as I live solely on my pension. But now that my house has turned 10, I have begun to turn the spigot on to refresh it. Though my misery ways creep back in occasionally. My garage door still looks brand new but has no windows. Instead of spending over a grand to replace it, I spent $200 on 4 faux windows and installed them. All my neighbors have asked about my new garage door. They look so real one of my neighbors kept trying to look through them even though I clearly told him they were fake.


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[aja8888]

We bought a new Subaru with cash in summer in anticipation of the retirement phase--I was afraid I wouldn't be willing to buy one after retirement. Planning on keeping it a long time, to be sure.

I've got an offer in on a end of year 2014 VW Passat Diesel. I'm buying for retirement years also as the older 2005 Jetta is in its later years and not suitable for the long term. Plus, I can get an aftermarket repair insurance policy on the newer car keeping me off the garage floor at my age.

 

[Meadbh]

Any article that cheerfully recommends a WR of 6% has limited credibility with me. Furthermore, what's the big deal with spending too little? Too little for what? If the answer is "to die broke", that would not be an enjoyable process AFAIAC.

 

[Major Tom]

I really don't think you'll be able to change your spending habits substantially. But it is fun to think about, isn't it?

Thinking about what I could purchase with my money is, in many ways, more enjoyable than actually spending it because that unspent money represents so much potential. Once it is spent, the potential is gone. This is one big reason I like having a healthy financial cushion.

And W2R - sorry to hear that your offer didn't work out, but I'm sure you'll find something else before long.

 

[Major Tom]

If you aren't spending enough, buy a used Volvo. That will help you increase your spending....

+1

Been there, done that

 

[ziggy29]

It's silly to call this a "problem" unless you are miserly to the point where it is affecting your own health and happiness, and to the point where it is affecting your relationships, even when you can clearly afford to be a little "looser" with your money. Other than that, the suggestions are a solution in search of a problem. Just because someone *can* afford to spend down more than 1-2% doesn't mean they *should* unless not doing so feels like self-deprivation or toxic to your life and relationships.

 

[Andre1969]

It's not just inflation. It's the increased cost of technology and advances in medicine. The stripped-down VW Beetle your grandparents could buy in the 1960s doesn't exist anymore. A new car now HAS to have multiple catalytic converters, air bags, on-board computers and (probably) A/C, power windows, power steering, power brakes.

I think cars are actually one area where, once you adjust for inflation, and all the content and safety features, they're actually cheaper nowadays.

To use one example, my grandparents bought a 1957 Ford Fairlane 500 4-door hardtop, brand-new, for about $3500 (I can't remember though if that was the MSRP or what he paid for it). Base price on the car was around $2414, but in those days just about everything we take for granted today was optional. So by the time you add in the biggest V-8 (base engine was a 6-cyl, and there were something like 3-4 V-8 options), automatic transmission, power steering, brakes, radio, backup lights, maybe a light in the glove box and trunk, mirror on the visor, two tone paint, white wall tires, etc, it wasn't hard to jack up the price.

Adjusting for inflation, that $3500 would be roughly $29,600 today. For comparison, I just priced out a 2015 Ford Taurus SE, and got an MSRP of around $27,700, including freight. The only option I added, to make it more on par with the '57, was the "smoker's pack" for $85. . This car would have, standard, automatic, power steering, power brakes, a decent stereo, air conditioning (a/c was about a $500 option in 1957, which is why it was usually only Cadillacs, Lincolns, and Imperials that were ordered with it), power windows and locks (Granddad's '57 didn't have those). I think the Taurus has a power seat, but even if it doesn't, it has dual reclining seats, where the '57 just had a solid bench. Tilt wheel, cruise control. Alloy wheels. I think the Taurus even has Navigation. Then there's the safety stuff like ABS, traction control, air bags, and so on. The Taurus, even with the base engine, is faster than the '57 Ford, stops faster, handles better, gets better fuel economy, etc.

The Achilles heel of modern cars though, is that when they do break down, the repair costs can be enormous. And there are things that can break on them that didn't even exist in the old days. For instance, about two years ago, I had to have about $1,000 worth of emissions work done on my 2000 Buick Park Avenue...all of it stuff that wouldn't have existed on a 1957 anything. Transmission repair costs went up in a major way back when we shifted from 3-speed automatics to 4-speeds in the 1980's. The last time I had a 3-speed automatic rebuilt, it was in a 1979 Newport, and was about $650, although that was back in 1997. My uncle needed the 4-speed in his '97 Silverado rebuilt awhile back (Forget the year now) and it was $1860. I shudder to think how expensive these modern 8-9 speeds are going to be to replace!

 

[shotgunner]

Any article that cheerfully recommends a WR of 6% has limited credibility with me.

Well I guess I can't trust FIRECALC then.

When I plug in my portfolio amount, a 2% spending inflation each year, Social Security, a small pension non inflation adjusted, and use the Investigate tab to see what it says I can spend. It tells me I can spend (with 100% chance of success) for a 30 year period starting at age 57, using a 6.69% withdrawal rate in year 1. Obviously that WR will be lower at age 62 when the SS and pension kick in.

 

[shotgunner]

I also just realized that FIRECALC says I can spend 150% more than I currently budget for this year and still have 100% chance of success. Add to this I am still working P/T and did not factor that income into the FIRECALC scenario. It is now clear to me I am guilty as charged by this article. More food for serious thought.

 

[Andre1969]

Well I guess I can't trust FIRECALC then.

When I plug in my portfolio amount, a 2% spending inflation each year, Social Security, a small pension non inflation adjusted, and use the Investigate tab to see what it says I can spend. It tells me I can spend (with 100% chance of success) for a 30 year period starting at age 57, using a 6.69% withdrawal rate in year 1. Obviously that WR will be lower at age 62 when the SS and pension kick in.

FireCalc gives me a 95.5% chance of success of pulling out 6.09% of my starting portfolio in year one. However, the math isn't quite that simple. That's 6.09% of my CURRENT portfolio, but I don't plan to start withdrawing until 6 years from now. With luck, my portfolio will be larger by then. Then, there's SS that will kick in in 2032, and my small, non-COLA'ed pension in 2035.

So, I don't know what the actual withdrawal rate of the portfolio will be once I actually start drawing on it.

When people talk about withdrawal rates and making a nest egg last though, they're just using simple math, and not counting other incomes such as pension, SS, etc. For instance, if I had $1M and pulled out $60,900 per year from it, FireCalc only gives that scenario a 47.4% chance of success.

 

[pb4uski]

And yeah, that 4-6% number caught my eye, too. ...

But one thing to remember is I suspect this article and the 4-6% is targeted to readers who retire at 65 or near their FRA or even later and not to ERs who retire in their 50s or earlier.

 

[pb4uski]

I almost did on Tuesday! But even though I'm eager to do so, there just isn't any sense in paying 7% more for the house than the maximum the comps could possibly justify. 4% more and we'll talk... Stupid sellers think it's the effing Taj Mahal. Maybe they'll come back at me with hat in hand and ask me to resubmit my offer, at some point, and then you'll see. Meanwhile I'll just patiently wait for something else suitable to come on the market. I'm not going to settle for just ANY house, y'know.

If your really like the house, you could call them and make them the same offer every 30 days for a couple months (then lower it) until they start getting realistic. If it is empty, you can accompany it with a reminder that they are out of pocket for costs of keeping it so each month they reject your offer means less money in their pocket.

 

[W2R]

If your really like the house, you could call them and make them the same offer every 30 days for a couple months (then lower it) until they start getting realistic. If it is empty, you can accompany it with a reminder that they are out of pocket for costs of keeping it so each month they reject your offer means less money in their pocket.

That has already been considered, of course. We'll see if I feel like doing that in 30 days or not. I'm not married to the house.

 

[haha]

Thinking about what I could purchase with my money is, in many ways, more enjoyable than actually spending it because that unspent money represents so much potential. Once it is spent, the potential is gone. This is one big reason I like having a healthy financial cushion.

And W2R - sorry to hear that your offer didn't work out, but I'm sure you'll find something else before long.

So right. Unspent money is like a full water tank way up on a mountain
Spend it and that power is forever lost.

Ha

 

[CaliforniaMan]

Personnally I think I have been worried too much about the odds of running out of money against the odds of running out of life itself.
Someon on this board gave my that epiphany moment when they pointed out they had a 100% chance of success on FIRECALC to age 95 and an 18% chance of living that long. One must find balance between the two and that is the tricky part of retirement to me.

+1
As I retired this year and less focused on financials of saving, this running out of time idea has begun to come more and more to the forefront. I don't think the idea is that you should spend it because you have it. But rather if there is some thing or some travel or some giving that would make your life better and more enjoyable, it might be better to go ahead and enjoy it now, rather than keep waiting for a time that will never come. I have to admit that we have a budget and are planning to spend less than 4%, but while we are not spendthrifts, we do happily blow some money on things we use, travel, entertainment and pursuing adventures as they arise.

I don't think 4-6% is unreasonable for people retiring at full retirement age. I think a lot of people on this site will have more money when they die than when they retired. To some that may mean success. To me it means you worked longer than you needed to.

I agree with this, but personally have a hard time with anything over 4%, too many unknowns, and just don't want to have to ever become a Walmart greeter.

But one thing to remember is I suspect this article and the 4-6% is targeted to readers who retire at 65 or near their FRA or even later and not to ERs who retire in their 50s or earlier.

I totally agree. There is a big difference in retiring very early, especially with kids still around, than retiring later.

 

[rodi]

(We have slack to fund travel and other non-essentials, and I'm only semi-retiring next year, so that's easy to post. After DW retires, maybe I'll start eating SPAM.)

LOL - I just bought a case of spam at Costco yesterday... Grilled up, with eggs. Yummy. Nothing beats salted canned meat.

I joked with the checkout clerk that the spam was to offset the organic chickens and the organic hamburger I also bought.

 

[aja8888]

LOL - I just bought a case of spam at Costco yesterday... Grilled up, with eggs. Yummy. Nothing beats salted canned meat.

I joked with the checkout clerk that the spam was to offset the organic chickens and the organic hamburger I also bought.

You could fry the organic chicken in the Spam grease too! That's multi-tasking!