Bernicke's Reality Retirement Plan

[tiuxiu]

So I've noticed clicking this checkbox on firecalc makes a fairly significant difference for me for success rate, curious what the wise ones in here think about it?

[walkinwood]

Here's a link to his paper.

Reality Retirement Planning: A New Paradigm for an Old Science by Ty Bernicke, CFP

I'm not sure of the validity of his conclusions in today's world.

I agree that the non-healthcare expenditures will decrease as I get older, but not sure of how healthcare expenses will affect the total. This study was done with data from 2002. Since then, the rate of increase in medicare costs to the individual seems to be accelerating. I'd like to see his study replicated today.

[Coach]

It's purely anecdotal, but it does seem to fit the behavior of my parents and other older folks.

Coach

[Notmuchlonger]

Quote:

Originally Posted by Coach It's purely anecdotal, but it does seem to fit the behavior of my parents and other older folks. Coach

I see the same thing with my in-laws.

[walkinwood]

I decided to look for more current versions of the data that Bernicke used. The US Bureau of Labor data is available online, so I used that.

The 2008 U.S. Bureau of Labor's Consumer Expenditure Survey tables are here
Consumer Expenditure Survey

The breakdown by age (http://www.bls.gov/cex/2008/Standard/age.pdf) shows that average annual expenditures do indeed decrease.
For ages,
45-54 is $61,179
55-64 is $54,783
65 yrs & older is $36,844
65-74 is $41,433
75 and older $31,692

Bernicke said that the total average expenditure decreased 27% between the 55-64 and the 64-75 age groups. The new data shows that to be 24.3%. Similarly, he showed a 26% decrease between the 65-74yr group and the 75 and older group. The new data shows 23.5%.

To really understand this, we'd have to study all the years between 2004 and 2008 to see the trends, but that's more work than I feel up for right now.

In re-reading his paper, there was one point that stuck out early on.
"While the U.S. Bureau of Labor's Consumer Expenditure Survey can be a useful resource for obtaining a basic understanding of spending patterns, these statistics do have limitations. One limitation of this data includes the potential absence of long-term care costs. For example, a person in a nursing home is unlikely to participate in a survey from the Bureau of Labor Statistics. This would give the health-care-expenditures category artificially low average expenses."

Personally, I believe that the long-term-care insurance companies manipulate the data to frighten people into buying their policies, so I don't believe all the numbers I hear about the probability of needing long term nursing care. On the other hand, if you end up needing it, statistics are meaningless.

[tiuxiu]

For a given target date checking that box moves me from upper 90%s for retirement success to the low 80%s, so I really want to check it.

[JoeDreaming]

I can't really imagine myself spending less as I get older.
I guess that implies that I've been living my entire life as an old man already.

[Finance Dave]

I do my planning based on spending less in late years (past 75). Just looking at where I spend my money makes this almost a certainty.

I have two expensive hobbies...woodworking and musclecars. I doubt I'll be doing much of either once I hit 75. In addition, travel will decrease. The one thing that may go up is health care.

[haha]

Quote:

Originally Posted by Finance Dave I do my planning based on spending less in late years (past 75). Just looking at where I spend my money makes this almost a certainty. I have two expensive hobbies...woodworking and musclecars. I doubt I'll be doing much of either once I hit 75.

You young guys are making the same mistake that many of us made in the 60s and 70s when we figured we would likely be dead before we were 30.

I had a lot of older friends when I lived up in the country. One guy was still doing ag work with his portable welder in his early 80s. Another guy helped me pull and redo 3 auto and truck engines when he was 78, and he was drunk 1/3 of the time. My Grandfather was still breaking horses in his early 80s.

Woodworking in a nice heated shop is like knitting by the fire compared to these things.

People can fold up fast, but given a little luck they can stay strong till quite late in life.

ha

[JustNtime]

Well I suspect the numbers are skewed by the number of paid off mortgages, reduced number (and prestige) of vehicles owned, need for additional home furnishings/etc., family members, and overall activity levels.
Obviously, our spending level dropped drastically when the house was paid off and we went to sharing a single vehicle. This year we grew tired of traveling and saved some more... How much lower can we go? It's probably time for a raise....

[youbet]

The problem with the analysis is that it talks about averages. So, say 60% spend less, 20% spend the same and 20% spend more. This likely yields an overall average reduction in spending. But what if you turn out to be in the 20% who want/need to spend more and you planned on spending less?

I have no doubt that seniors, on average, spend less as they age. But I wouldn't be surprised to find DW and I spend more as long as we're healthy and able. I can see this coming with our hobbies. I'm a ham radio operator and already pay to have others do the "high wire act" of climbing towers to install antennas. And I find myself more interested in purchasing the latest and greatest equipment NOW since this isn't the time of life to do much delaying of gratification. DW and I both love to take canoe camping trips but I can't handle the portaging anymore. Bringing along a guide is very pricey, but heck, we still want to go and enjoy the trips very much....... Etc.

My dad retired to northern Arkansas near the White River famous for trout fishing and hazardous navigation due to strong currents, rocks and shoals. He fished with a buddy a couple of times a week for years but in his mid-70's they got in a few situations where greater physical strength and less age related fretting were required. So, they gave up and sold the boat. When I suggested they just use a guide, yep, you guessed it, out of their budget except for a rare treat. If I can help it, I don't want that to be me so I'm not planning on reduced spending if I can help it.

[WB52]

I think that as long as we recognize the Bernicke principle for what it is, a sucinct summary of average spending patterns, then we are ok. None of us are exactly average, so we need to estimate how close our behaviors will match. In my case, I'm 49 and expect to RE in 3 or 4 years. I am in good health and have a lot of pent up demand for travel and a few toys, so I expect to spend more for the first few years. But then I know I expect to settle back to the previously stated pattern. Almost like a magnet drawing me back to my LBYM mentality.
For planning purposes, I am ignoring the reduced spending. But that is only as a safety buffer. If push comes to shove and I want to bail out of megacorp... I will take the expected reduced spending into account.

Walkinwood - Thanks for looking up that data. Interesting (and comforting).
Regards...

[WB52]

I think that as long as we recognize the Bernicke principle for what it is, a sucinct summary of average spending patterns, then we are ok. None of us are exactly average, so we need to estimate how close our behaviors will match the stated pattern. In my case, I'm 49 and expect to RE in 3 or 4 years. I have a lot of pent up demand for travel and a few toys, so I expect to spend more for the first few years. But then I know I expect to settle back to the previously stated pattern. Almost like a magnet drawing me back to my LBYM mentality.
For planning purposes, I am ignoring the reduced spending. But that is only as a safety buffer. If push comes to shove and I want to bail out of megacorp... I will take the expected reduced spending into account.

Walkinwood - Thanks for looking up that data. Interesting (and comforting).
Regards...

[Independent]

I think the analytical types that hang out here can do a little better than assume the averages. I've always thought that you should have a "basic" spending number that really will be level over the years (allowing for hearing aids and dentures to replace some more active expenses as you age). Then have an explicit "fun money" spending plan on top of that. Schedule the fun money the way that it makes sense to you. If your fun money includes two years in a motorhome making a circut of the US, great. Just put it in as a lump sum in the first two years of retirement. etc...

But YouBet has a perspective I hadn't thought of. Maybe there are some things that I would continue to have fun with, but would become more expensive. In my case, it might be shifting to less independent travel - take the tour instead of going on my own.

[kat]

Quote:

Originally Posted by youbet I have no doubt that seniors, on average, spend less as they age. But I wouldn't be surprised to find DW and I spend more as long as we're healthy and able. I can see this coming with our hobbies. I'm a ham radio operator and already pay to have others do the "high wire act" of climbing towers to install antennas. And I find myself more interested in purchasing the latest and greatest equipment NOW since this isn't the time of life to do much delaying of gratification. DW and I both love to take canoe camping trips but I can't handle the portaging anymore. Bringing along a guide is very pricey, but heck, we still want to go and enjoy the trips very much....... Etc. My dad retired to northern Arkansas near the White River famous for trout fishing and hazardous navigation due to strong currents, rocks and shoals. He fished with a buddy a couple of times a week for years but in his mid-70's they got in a few situations where greater physical strength and less age related fretting were required. So, they gave up and sold the boat. When I suggested they just use a guide, yep, you guessed it, out of their budget except for a rare treat. If I can help it, I don't want that to be me so I'm not planning on reduced spending if I can help it.

You made me remember some fine older friends of mine.

I was in my senior year of high school still living at my parents' place when the first person close to me died -- a neighbor next door, who had lived there since before I was born, who I saw every day. He died while ice fishing in the Adirondacks.

My hiking gang goes skiing in the winter, and some non-hikers join them. The oldest is in his late 80's.

My hiking friends still tell stories about the hiker in the group who had a heart attack and died -- not in the mountains, but at the barbecue later. He was in his late 70's.

I don't know if ice fishing or skiing cost much if you have the equipment (skiers in Vermont get senior discounts), but hiking surely doesn't.

So I agree that we should all plan for very active older lives, but it depends on your hobbies.