Are you guilty of spending too little ?

[shotgunner]

Some food for thought for many of us I am sure. As the three stooges used to say, "Hey I resemble that remark"

http://finance.yahoo.com/news/7-signs-youre-spending-too-210000681.html

 

[gerntz]

Perhaps. Guess I should buy a 2nd new car this month.

 

[braumeister]

OMG!

How do you know if you’re underspending in your retirement years? One likely sign: You're spending so little that you have a near 100% chance of never running out of money.

Really?

Most financial advisers agree that the standard withdrawal rate, assuming you’ve adequately saved, is between 4% and 6%.

Really?

 

[Andre1969]

I'm not retired yet, but I could see this being a problem for me. It's probably going to be difficult to switch to a spend-down mode, after accumulating for so long. But, I'm looking forward to the day I have to flip that switch!

 

[athena53]

So, now you're being too stingy if your withdrawal rate is less than 4%. I remember during the financial crisis the "experts" were saying that maybe 4% was too liberal and you should plan on a rate of 2%. Umm, have they changed their minds again?

My calculations show that under some pretty reasonable assumptions I'll have just about what I do now (when adjusted for inflation) in 30 years, at age 91. If I overshot the mark and saved too much, so be it- I have a lovely granddaughter and her parents are hoping for a couple more. They'll need educating. In the meantime, I'll stick with a 3% rate, which will significantly decrease my chances of having to rely on a Medicaid nursing home and allow for the other things they mentioned in the article that can so affect the quality of life: decent dental and vision care, household help, etc. Those things are going to be more important when I'm 90, and given my genes I could get there.

 

[Andre1969]

And yeah, that 4-6% number caught my eye, too. The only justification I could see for it would be if they took into account a pension and SS. For instance, FIRECalc gives me a 99% chance of success if I retire right now, with a 4% SWR, but that's because of SS and a small pension. Take those out of the picture, and my chance of success drops to 84%.

Just going to 4.5% drops the success to 84% with SS/pension factored in, and 68% without it. I never even bothered to check the success rate at 6%!

 

[daylatedollarshort]

The basic idea in these kinds of articles is always that more spending equals greater happiness. A lot of happiness studies seem to show that may not exactly be true -

How Money Buys Happiness: Buy Experiences, Spend on Others, and More Tips

"Money can’t buy me love,” the Beatles once sang. But can greenbacks buy a measure of happiness? Yes, psychologists say, but many people don’t know how to spend for maximum happiness."

I started going to garage sales and thrift shops to furnish an apartment for one of the kids and I am still shocked at how much stuff I could buy for so little, a lot of it unused and still in the box. One sale I went to at a McMansion at the end of the day the people said I could have everything for free if I would just take it all way.

 

[H2ODude]

I struggle with the spend too little thing but it all boils down to this...if dollars have an inherent value because you worked for them, it's difficult to enjoy spending them on things that don't mean much too you. We have everything we want, there's nothing we want that money could buy (that we don't already purchase or plan to). Hence the nest egg in most likelihood will be 2-3x bigger IF we make it to 92. Neither of kids likely to need it, but I'm sure they'll invest it well. We think about replacing the 11 yo Acura, but, it only has 80k miles on it, runs great, and who cares if someone dings it? We've had the Porsche, it was fun, but don't feel like driving around being looked at. Not that there's anything wrong with that!

 

[papadad111]

Do any of you see that show on TLC called extreme cheapskates ? Kinda funny show. I know it's a little off topic but this thread and article reminded me of that show ..


Sent from my iPhone using Early Retirement Forum

 

[bradaz2488]

My WR is at 2.5% at age 50 and is projected to be 3.5% at 65, 4.5% at 75, 6% at 85 and 9% at 95. The increase in WR is due to increase spending on healthcare. If I knew I was going to receive SS and Medicare then I would be more comfortable spending more now. Too far away to really include these benefits into my spending plan at age 50... That is the ironic or double edge sword. I would like to spend more money in my early retirement years when I'm more healthy, but there are too many unknowns with ACA, SS, Medicare and how long we are going to live... Hence the fear of running out of money....

 

[RetiredAndFree]

I struggle with the spend too little thing but it all boils down to this...if dollars have an inherent value because you worked for them, it's difficult to enjoy spending them on things that don't mean much too you. We have everything we want, there's nothing we want that money could buy (that we don't already purchase or plan to). Hence the nest egg in most likelihood will be 2-3x bigger IF we make it to 92. Neither of kids likely to need it, but I'm sure they'll invest it well. We think about replacing the 11 yo Acura, but, it only has 80k miles on it, runs great, and who cares if someone dings it? We've had the Porsche, it was fun, but don't feel like driving around being looked at. Not that there's anything wrong with that!

+1

With regard to the fancy car phase - we bought my dream car, used of course, back in 2004 - a 2003 BMW Z4. Because I had a company car during my w*rking years, and now spend half the year away from home traveling since FIRE, it has only been collecting about 3,000 miles a year since purchase. Now I see it as a series of expensive repairs waiting to happen, and we will likely sell it for a less expensive, better mileage 'pre-owned' car in a few years.

Elsewhere in this forum someone suggested a certain net worth would appear to justify flying first class. After so many years of LBYM, I simply can't wrap my head around that. And there is much to be said for having a healthy cushion in the event life throws a few curve balls in the decades ahead. Like when our healthcare premiums went up 125% this last January under ACA. It was a shock, it hurt, but we were easily able to absorb the increase because we continue to live more modestly than our portfolio would appear to allow.

What price does one put on peace of mind?

 

[FUEGO]

Probably. But I'm working hard to remedy that "problem".

And since I'm relatively young and dependent on my portfolio for many decades to come, I wouldn't define underspending as a problem for another decade or two.

I still haven't worked out exactly how our withdrawal rules will work. % of portfolio each year? Floor/ceiling on how much we vary from year to year? I want to spend more in years with excellent returns, and spend less if our portfolio is in the crapper. So far I'm handling that intuitively.

We set our $32,000/yr budget (=under 3% WR) and have no problem spending up to that amount each year. Travel, for example, at $5300 will go partially unspent this year (but not for lack of vacations!), but we have some major repairs on the house to tackle over the next year so we might throw some of that money (and other unspent $$) toward the house.

"That's what we saved it for" is a common thought these days when it comes to a spend/don't spend decision.

 

[H2ODude]

+1

Elsewhere in this forum someone suggested a certain net worth would appear to justify flying first class.

Yeah, we have to fly to London and Tanzania to see our kids and absolutely hate the long flights, especially to Africa. Business class looks wonderful, but I just can't wrap my head around paying ~$500 an hour for the two of us to enjoy it. Maybe with the miles upgrade, OK, but not cash out of pocket! That doesn't make us cheap, it just seems sensible to us!

 

[athena53]

The basic idea in these kinds of articles is always that more spending equals greater happiness.

Well, I think they do make a valid point about healthcare spending. That's an area where DH and I do everything we can in the way of cheap prevention, but don't hesitate to get the best option even if it's more expensive.

I agree on the spending on Stuff, though. We're de-cluttering at this stage in our lives.

 

[shotgunner]

OMG!

Really?


Really?

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.

 

[aja8888]

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?

 

[2B]

It's highly unlikely I'll spend what I have. I have a sinking fund to cover my pension, social security, health care over Medicare until they all kick in. I then make 5% of the remaining portfolio available for spending in any given year with allowances for big expenses (car, roof, etc) above this. The pension and SS will actually cover my basic expenses so the 5% is pure fun money and life style enhancements. If we get a market drop, I just have less fun money. This current available spending is well over what I am spending now so I don't think I'll be able to spend it. I won't just blow it. DW and I demand that we get what we perceive as "value" from our spending.

 

[W2R]

Now that I am getting SS direct deposits, my WR has gone from 2.x% to 1.x% and is getting awfully close to 0.x%. So yeah, I suppose that I am underspending at the moment, but I don't plan for this to be a permanent situation. I am working on some pretty big ideas to not only spend the excess from previous years, but also to push my present spending up substantially and keep it there, like any good consumer.

I almost took care of the situation this week, but the deal didn't pan out. No rush, though. If it takes a few years to get my plans in place, I'll just relish the process that much more.

 

[REWahoo]

Now that I am getting SS direct deposits, my WR has gone from 2.x% to 1.x% and is getting awfully close to 0.x%. So yeah, I suppose that I am underspending at the moment, but I don't plan for this to be a permanent situation. I am working on some pretty big ideas to not only spend the excess from previous years, but also to push my present spending up substantially and keep it there, like any good consumer.

No rush, though. If it takes a few years, I'll just relish the process that much more.

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?

 

[rodi]

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.

 

[marko]

Spending too little? Me, yes, but DW cancels me out!

 

[Lakewood90712]

Ya , maybe so , as defined by the article. I think I spend at least double or more , adjusted for inflation, compared to my grandparents generation.

 

[W2R]

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?

Ha! Oh ye unbelievers, just wait and see. If this non-traveling homebody somehow manages to buy a more upscale home (a purchase that would have a lot of value for me), the property tax assessor and the insurance company would help me change my spending habits quite a bit. I am figuring that just the increased property tax and insurance would eat up all of my SS. The utilities and maintenance would be more, too.

You know how they caution homebuyers about lifestyle creep if they buy a more expensive home in a better neighborhood? Well there you go. But I am in no hurry. I will relish the process, you're right. It definitely IS fun.

 

[REWahoo]

Ha! Oh ye unbelievers, just wait and see.

Go ahead, prove me wrong!

 

[W2R]

Go ahead, prove me wrong!

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.