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Bernicke's Reality Retirement Plan
Old 10-17-2009, 12:41 PM   #1
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Bernicke's Reality Retirement Plan

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?
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Old 10-17-2009, 02:46 PM   #2
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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.
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Old 10-17-2009, 04:38 PM   #3
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It's purely anecdotal, but it does seem to fit the behavior of my parents and other older folks.

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Old 10-17-2009, 04:41 PM   #4
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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.
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Old 10-17-2009, 10:07 PM   #5
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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.
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Old 10-18-2009, 06:19 AM   #6
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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.
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Old 10-18-2009, 07:35 AM   #7
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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.
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Old 10-22-2009, 09:06 PM   #8
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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.
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Old 10-22-2009, 09:43 PM   #9
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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
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Old 10-23-2009, 10:08 AM   #10
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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....
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Old 10-23-2009, 10:21 AM   #11
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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.
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Old 10-23-2009, 11:24 AM   #12
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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...
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Old 10-23-2009, 11:44 AM   #13
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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...
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Old 10-23-2009, 12:24 PM   #14
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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.
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Old 10-23-2009, 01:25 PM   #15
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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.
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Old 07-10-2016, 02:03 PM   #16
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I had not heard of this model by name before today.

However, I already believed that it was true.

When I started my career in 1982, my dad (an accounant) encouraged me to develop a tracking sheet for what I spent money on. I didn't keep it up - took WAY too much time. But I did it semi-regularly for a few years. And just recently I found, in old boxes, those documents. Reading them was an eye-opener.

In almost all categories, I spend less today than in 1982. I'm not adjusting for inflation when I say that! Actual dollars out of pocket. How could this be true?

Some it is technology. Some of it is simply how the human body reacts.

Here are some examples:
Gasoline: In 1982, $1800 per year. Breakdown: I drove 25,000 miles a year, gasoline was about $1.50 and the car (a 10 year old Chevy with 70k miles that my folks gave me) got 13-14 MPG.
Today: $1600 per year. Breakdown: Myself and my wife together drive 15,000 miles per year, I figured gas at $3, and I used the lowest MPG of our three vehicles, my hot rod at 27MPG. If I actually averaged the MPG of my car and the wife's, we get the actual spend from Quicken, which is $1100.

Why the reduction in miles driven? In 1982, I was fresh out of college and in a new town and the only way I could think of socializing (to meet women) was clubbing and other activities involving spending money. When I did go on a date, I was most likely to take her somewhere for a weekend - the coast or at least a few cities over to see a gorgeous park/valley/mountain that would be outside our immediate citiy's daily experience. Nowadays, while I do enjoy driving ye olde hot rod, if I don't happen to be carving up the switchbacks going uphill fast, I now view most driving as a means to get stuff done, and seek ways to minimize it.

Car insurance: 1982, $5000/year for one car. Today, $1200/year for 3 cars. Why? In 1982 I was a single male, early 20s, clean driving record. All single males paid horrible prices then. All I had was an old Chevy. Today, I'm married, old, have an at-fault accident on my record, but also don't live in the city. My deductibles are no different, the value of the cars is much higher.

Automobile purchase/depreciation. Somehow I figured out early on that buying cars new and replacing often probably would hamper my ability to spend on other stuff. So, from 1982 until 2014, I spent between $3500 and $7000 on cars, never outside that range. Had I found a car exhilarating enough, I'd have spent more, but not a lot.

But, a $5,000 car in 1982 would be a 3-5 year old car that I'd get 3-5 years out of before it started requiring substantial maintenance and repairs. Today, I can find $5,000 cars that have another 100,000 miles of low-cost ownership in them. Cars are that much better. I keep a log of every car I've owned and with a few exceptions, every newer vehicle has cost less per year/mile than the previous ones. What are the exceptions? Cars with lots of accessories, upmarket models, European models. Mostly I drive 4-cyl manual transmission cars. In 2014, I decided I wanted us to splurge, so we bought our first new car, my wife's Prius in mid-2015, and later I bought my mid-life crisis car, which was an '013 so it was used, just not as used as I usually get.


Food: $600/mo 1982, $700/mo today for two adults. What? But hasn't food gone up a lot? Sure, but I'm older. Because of a nearly life-long battle to lose the last 30 pounds, I track calories every few years, determining at what daily intake my weight is stable. In 1982 it was 3300 calories per day, today it's 1600. And in 1982 I was sedentary, whereas today I run a few miles 3-5 times a week and am outdoors a lot more. My wife is petite and simply doesn't need much to maintain.

The metabolism slows as we age - a lot. For some folks who don't adjust, this leads to obesity, but if you watch your weight, it leads to spending reductions.

Electricity and gas: In my 20s, I left lights on, now I don't. I've also realized light-colored walls prevent the need for artificial light in the daytime. I've also gotten better at managing airflow. Plus, new buildings are more efficient, and if you own an older one (as I do), we know more about insulation/sealing, etc. My utility bills in 1982 were $350 for a 1200 square foot half of a duplex. Today, 1800 square feet, avg heating/cooling is $120/mo. Electricity prices went up, but I use less of it.

Category after category works out like that. I'm wiser in some cases, and in other cases, technology makes the win.

The biggest exception: The Phone. $12/mo in 1982. Today, $85/mo for two cell phones. Plus - we now pay $50/mo in internet access, something that didn't exist in '82. I've never had cable TV at all, so it costs the same today as in '82.

Health care: in '82, insurance plus regular visit was about 10% of my gross income. Today, for the two of us, it's about 10% of the gross income I earned until I quit working. Then the insurance cost went down, visit costs went up, but total is the same. We are on ACA with a high-deductible plan. But, I also have to note that the stuff we've paid for recently didn't even exist in '82...new tech in this case gives us more stuff to spend on.

I've chatted with similar -aged friends who have observed their own spending, and I've found no exceptions.
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Old 07-10-2016, 02:21 PM   #17
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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.
What any analysis like this completely misses, though, is what Henry Hazlit pointed out - we tend to immediately grasp the details only of what's in front of us.

For instance, travel. We always think about the cost of travel, but we neglect the other side of it - all that spending we do while at home ceases while on travel. Let's consider a month away. Other than a security light, we shut off the home lights. In summer, we shut off the AC, in winter, we turn down the thermostat. We're not on the internet, drawn to purchase things we see online. We're not meeting friends at restaurants. In my case, the inclination to meet other hams for weekly lunches and breakfasts goes on hold. Our weekly at-home grocery bill goes to zero.

Just as an experiment, my wife and I decided to see if we could make vacation cheaper than staying at home. Guess what? We did it. We have taken a few trips now where we camped instead of using hotels, or stayed at friends' homes, using their house as a jumping off point for exploring the area. For us, it helps that we prefer visiting natural areas, not museums and shopping malls. Heck, we don't go to shopping malls while at home, what would draw us to a mall elsewhere? We both watch our diets - both for health and weight reasons - so we long ago fell into the habit of just buying groceries wherever we are and eating nominally the same as at home anyway.

Travel by air is a whole different matter. By air and then rent a car? Yes, expensive. Avg $200/day for us. Which is $7000 a year if we do it 365 days a year...so, not all that much, really, since we don't travel all year.

After I stopped working, I began finishing up already-started projects. In the first year, I spent about $6,000 on lumber, fasteners, electronic gear...and spent $500 less on gas, $250 less on lunches out with colleagues, $1000 less on business clothing, and in fact, stopped traveling that year, since the project work was so fulfilling.

When we tally up "what we added" in expenses, we tend to forget that you can't add something new to your schedule without removing something, and that means the added thing is compensated for by other things.

My parents, upon retirement, added a dozen golfing trips per year to the schedule but they said somehow they still reduced their spending about 20% per year.
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Old 07-11-2016, 08:08 AM   #18
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Travel by air is a whole different matter. By air and then rent a car? Yes, expensive. Avg $200/day for us. Which is $7000 a year if we do it 365 days a year...so, not all that much, really, since we don't travel all year.
Just wanted to point out that $200/day becomes $73,000 a year, not $7,000. Pesky little things, those decimal points

But yes, the foregone costs while away do need to be factored in when thinking about travel.
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Old 07-11-2016, 09:13 AM   #19
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Remember a few stories about Japanese folk going abroad on holiday because it was cheaper for them to travel than to stay home. In the 90s I believe, bubble times.

I'm reasonably frugal in out of pocket (<15k per annum), so hard to see how I can travel cheaper than current living expenses unless I cancel my rent and sell the car.
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Old 07-11-2016, 09:29 AM   #20
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This is truly a zombie thread - dead for 8 years and suddenly it's active again!
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