Does retirement spending decrease with advanced age?

[JustCurious]

I often read advice (including advice given on this board) that when you plan for retirement, you should make sure you have enough money to sustain a given amount of spending that continually adjusts for inflation over your lifetime. And if you retire at say 60, you should plan on living to 90 or 100, so you should plan on withdrawing an inflation adjusted income for 30 - 40 years.

However, is this really necessary? Is it realistic to expect that you will spend the same amount (adjusted for inflation) at the age of 85 or 90 as you do at the relatively young age of 60? Isn't it more realistic to expect that after the age of 80, you will decline in terms of vitality and mobility and energy, and your income needs will therefore be lower? I am also assuming that by the age of 75-80, with proper planning, there is no more debt to be repaid (ie no mortgage or other payments). Therefore, isn't it more realistic to plan for active inflation adjusted spending up to around age 75-80, and then plan for reduced spending after that? Stated differently, is it really necessary to plan for inflation adjustments past the age of 80?

 

[Cut-Throat]

I basically agree with you, but there are a lot of very vocal people on this forum that will tell you otherwise. Warn you that you're gonna end up eating cat food etc. etc.

As a group we are a conservative bunch. We run FireCalc which gives us a 'worst' case historical perspective, plan to live to age 120, plan on inflation over and above what FireCalc says,

In reality 95% of the folks on this board will die with a bigger pile of money than they retired with. That is not for me, even though I will probably die with more money than I want to. That is the disadvantage of living on a stash of money vs. a Cola Pension. We don't know when we're gonna die, what the economy of the future holds, or personal catastophies.

But there should be a balance. So don't cower in your home too afraid to spend a little and live life before you're 80. This is one of the reasons I am electing to delay S.S. to age 70. This will allow me to spend more money before age 70 knowing that I've got a bigger paycheck in older years, if I live that long.

 

[Rich_by_the_Bay]

I agree with CT in essence, but as we have discussed before, the big wildcard is health care costs.

If you plan to pay for long term care out of pocket, and if you feel LTC is a plausible risk to plan for, and if you don't have major LTC insurance (and perhaps even if you do), then you will need a lot of money in your 80s if it should come to that.

In today's dollars, maybe $75K x 3 (a little more than the average length of stay in a NH) adjusted for inflation or $225K per person seems a sensible downside risk, understanding that your planned-for living expenses will partially defray that. I am passing on LTC insurance for lots of reasons.

Then, health insurance at about $6K/y/person before retirement (and less expensive but not negilgible) Medicare supplemental thereafter, and likely increase in out of pocket for deductibles, prescriptions etc. depending on coverage. These are increasing faster than inflation.

So, like all risk management you have to decide how to cover these, or to take your chances, or to reverse-mortgage, etc. Healthy = much cheaper than sick, but both are expensive.

Just some more information to consider for your twilight years.

 

[haha]

I agree with CT in essence, but as we have discussed before, the big wildcard is health care costs.

Then, health insurance at about $6K/y/person before retirement (and less expensive but not negilgible) Medicare supplemental thereafter, and likely increase in out of pocket for deductibles, prescriptions etc. depending on coverage. These are increasing faster than inflation.

So, like all risk management you have to decide how to cover these, or to take your chances, or to reverse-mortgage, etc. Healthy = much cheaper than sick, but both are expensive.

Just some more information to consider for your twilight years.

My parents spent less as they aged, then they hit LTC and that changed abruptly. But Mom had good teachers' retirement health coverage for her and Dad.

In another thread Jarhead posted today that he and his wife, both Medicare eligible, are spending about $12,000 pa for their medical and dental.

I began Medicare almost a year ago, and I have cheap meds insurance and a good but relatively inexpensive supplement. It nevertheless costs me over $3000 pa; add a crown or two, and I am pushing $5000. With no major health problems.

Part of the mission of this board is to educate; part of it is to help cube dwellers alleviate what otherwise might become unbearable depression. Hence the undying popularity of articles about this or that poster who "could" live well on $12,000, for a family, or with four dogs, or whatever. IMO, life gets more and more expensive. Of course if one is jetting around the world and staying in nice accommodations, there is plenty that could be cut once one no longer wants to do this. But many here have already elevated saving money to the status of a religion; how could they squeeze more without becoming homicidal?

Ha

 

[jdw_fire]

I often read advice (including advice given on this board) that when you plan for retirement, you should make sure you have enough money to sustain a given amount of spending that continually adjusts for inflation over your lifetime. And if you retire at say 60, you should plan on living to 90 or 100, so you should plan on withdrawing an inflation adjusted income for 30 - 40 years.

However, is this really necessary? Is it realistic to expect that you will spend the same amount (adjusted for inflation) at the age of 85 or 90 as you do at the relatively young age of 60? Isn't it more realistic to expect that after the age of 80, you will decline in terms of vitality and mobility and energy, and your income needs will therefore be lower? I am also assuming that by the age of 75-80, with proper planning, there is no more debt to be repaid (ie no mortgage or other payments). Therefore, isn't it more realistic to plan for active inflation adjusted spending up to around age 75-80, and then plan for reduced spending after that? Stated differently, is it really necessary to plan for inflation adjustments past the age of 80?

This line of think agrees with the spending study made by Bernicke except that his study shows that the reduction in spending starts at age 56 not 75-80.

 

[dex]

I too think that spending will remain relatively constant. The concept being that when a younger RE you spend your money on travel and more physically challenging persuites. As you age you spending pattern changes from travel to more local activities but other costs may increase - health costs; education; hobbies.

I'm hoping this is so but planing for inflation.

Time will tell.

We can only hope that the good posters and expense trackers will be on this board when they are 80ish.

 

[haha]

This line of think agrees with the spending study made by Bernicke except that his study shows that the reduction in spending starts at age 56 not 75-80.

Well, I am 65 and my experience is that this is false. Of course, as in everything else this is just one data point.

But many of the retired people here are this old, ask them if somehow they magically start spending less.

Ha

 

[haha]

Mikey - If you had to predict - How much dough would you guess you'll die with? And are you depriving yourself anything today because you feel you might not have enough in the future? It is a balance you know.

Cutthroat, I don't have a clue about what I might or might not die still holding.

As to whether I am depriving myself, yes, to some agree. I think in a consumer society most of what gets done well is consumer goods and services. We can't walk down to the Spanish Stairs like a Roman can, and just enjoy the most intense beauty for free.

What we have is incredible TVs, really good food that is still cheap, nice restaurants that are within reach of most of us, lots of nice stuff that has to be bought.

If money didn't matter, I would dump my Subaru for a Porsche, maybe find a 30 year old to sleep with, etc. All this stuff gets expensive, and if I indulged myself I would blow through my security.

At the same time, I don't care about the small economies that get a lot of play here. If I want to go to a really good coffee house (not Starbucks!) for an espresso, I go and treat someone else too.

But if I suddenly come across another $2 mm, you will be the first to hear, and I'll even ask for your guidance as I step up my level of living.

 

[Bikerdude]

I think health care is going to become more expensive for retiree's as Medicare is cut. In addition, if I want to stay in my home I will have to hire people to do all the things I do today which is everything. I would assume gifts will probably go up as travel goes down. I'm still not convinced that my costs will level off or come down that much so that I don't worry about inflation. I still use 2% inflation after 80 in my spread sheet

 

[Gone4Good]

I think health care is going to become more expensive for retiree's as Medicare is cut.

On the other hand, healthcare spending is growing at unsustainable levels. To be sure, anything that can't continue, won't. I think that is true for double digit healthcare spending increases. So it may turn out that by the time most of us hit 80, a system is put in place so that healthcare is actually affordable. (this isn't meant as a joke, really)

 

[sgeeeee]

http://www.fpanet.org/journal/articles/2005_Issues/jfp0605-art7.cfm?&

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

Executive Summary
- Traditional retirement planning assumes that a household's expenditures will increase a certain amount each year throughout retirement. Yet data from the U.S. Bureau of Labor's Consumer Expenditure Survey show that household expenditures actually decline as retirees age. Consequently, under traditional retirement planning, consumers tend to oversave for retirement, underspend in their early years of retirement, or postpone retirement.
- "Reality" retirement planning assumes that a household's real spending will decrease incrementally throughout retirement. The result is that clients can make more realistic retirement saving assumptions and will be able to retire sooner.
- The paper analyzes the Consumer Expenditure Survey data to determine whether people are spending less voluntarily as they age or out of financial necessity or generational differences. The conclusion is that reduced spending is voluntary.
- Using Monte Carlo simulation, the paper runs hypothetical retirement income projections comparing traditional retirement planning and reality retirement planning. Under the traditional approach, the couple's nest egg would appear to be depleted by age 80. Under the reality approach, the nest egg at age 80 would be over $2 million.
- Such dramatic differences not only have implications for retirement planning, but for related issues such as estate, tax, and investment planning.
. . .

 

[cute fuzzy bunny]

What the study didnt show is the cause-effect linkage. What it did show is a lot of desirable information regarding the ability to cut future social security and pension payments to aging retirees. Hey! You dont need the money!

Do people spend more when they age because they want to? Or do they spend less as they age because they have to? The portion of the study that attributed the spending cuts to voluntary moves was (IMO) poorly done and shows nothing.

Ask proud people if they cut their spending because they wanted to or because they didnt save enough or were afraid of running out of money. Guess what answer you're going to get...

That having been said, my dads 73 and his spending increased when he first retired at 62 (played more golf and ate out more often), but in the last 4-5 years he says he's surprised to find that his spending is dropping a thousand or so per year. He can afford to spend more but is concerned about outliving his money...at least as much of that as he'll openly admit. His social security benefits keep getting nibbled into by increasing medicare costs and he feels that after 10 years the overall spending power of the social security check has dropped around 30%...hmmm...3% per year.

 

[wabmester]

in the last 4-5 years he says he's surprised to find that his spending is dropping a thousand or so per year .... he feels that after 10 years the overall spending power of the social security check has dropped around 30%...hmmm...3% per year.

I hope you set him right. You've convinced us all that if we take our last few years of spending, all we have to do is a straight-line forward-extrapolation to get the REAL inflation rate, right?

Tee hee.

If money didn't matter, I would dump my Subaru for a Porsche, maybe find a 30 year old to sleep with, etc. All this stuff gets expensive, and if I indulged myself I would blow through my security.

Back when I first tried to decide what My Number was, I included the cost of a Newport Beach mansion, a yacht, and a small harem. I didn't quite hit that number, and actually found my happiness increased as I scaled down my post-retirement lifestyle. A Posche would be fun, but so is an annual roller coaster ride at the county fair....

 

[youbet]

Do people spend more when they age because they want to? Or do they spend less as they age because they have to? The portion of the study that attributed the spending cuts to voluntary moves was (IMO) poorly done and shows nothing.

Agreed. While I'm sure many folks spend less as they push through their 70's and 80's due to decreased physical/mental abilities and diminishing vigor, there are also many who cut back because they are running out of money. That would be troublesome.

 

[sgeeeee]

The Bernicke article simply documents what the average retiree has done. There are at least two important questions that should be asked before someone decides they will assume this spending pattern in retirement. The first has already been pointed out: "Does the average spending go down with age because people want to spend less or because they have to?" The second question that occured to me when I read this was, "Will my own desires follow those of the average person or will I want to spend at the same rate or higher?" This question is especially pertinent for ERs since early retirement is not the norm. Being an ER places you far outside the average to start out.

 

[cute fuzzy bunny]

I hope you set him right. You've convinced us all that if we take our last few years of spending, all we have to do is a straight-line forward-extrapolation to get the REAL inflation rate, right?

Tee hee.

The program is called "Reading Is Fundamental". Check it out. Your eight year old friends can clue you in, methinks.

I said determining the rate of change over time in your spending and differentiating between cost of living increases and lifestyle cost changes is valuable, measurable and actionable. I never said, nor did I imply, that taking a year or two of spending differences could be projected in any useful manner.

It'd be nice if the forum leadership spent more time trying to flesh out and find value in discussions rather than how to disrupt them.

Back to our regularly scheduled program...

Based on looking at my dads "sun city" retirement community where the average age seems to be north of 70...a bunch of people using the "free" clubhouse activities (workout room, playing cards, swimming pool, "investment room", etc...some travel extensively...some take the bus-ride trips to reno/tahoe for gambling or to wine country to taste some vino.

In most instances of the folks there that he and I know, one spouse has a moderate to severely limiting physical or mental disability that limits going much of anywhere or doing much of anything.

In a fair number of instances, loss of a drivers license has seriously limited lifestyle options.

In a really fair number of instances, folks lost big in the 2000-2002 crash and then pulled their money out of the stock market and sat in 1-3% money markets and cd's while the market recovered and ran back up. Some very good lessons about asset allocation and sticking with your plan there.

I'd say theres an even split between needing to spend less and choosing to do so.

Note these are somewhat to moderately wealthy people. I suspect the perspective of the working class retired folks is a bit more dismal on both sides of the fence. Lousy medical care and lousy financial pictures going into retirement, et al.

 

[sgeeeee]

. . .It'd be nice if the forum leadership spent more time trying to flesh out and find value in discussions rather than how to disrupt them.

. . .

Play to your strength, CFB. Play to your strength.

 

[bosco]

according to Bud Hebeler at http://www.analyzenow.com/

Statistics that show older retirees spend less do not demonstrate that they are inclined to spend less. They merely reflect the fact that they have less than they are willing to spend considering all of the future uncertainties. If you gave almost any one of them an extra million dollars, they wouldn’t have any trouble spending it.

I firmly believe that if older people had the money, they would lead a more active lifestyle. My wife and I provide some modest assistance to older people who have to live on very little. They become couch potatoes and watch TV incessantly because they can’t afford to do anything else.

anecdotal, but worth thinking about....

maybe I'll WANT to spend less when I'm older, but I am not building this assumption into MY plan.

 

[kaudrey]

Hi, first, thanks for all the different perspectives.

My parents retired at 57, they are 69 now. They probably spend about the same each year - they do the same things, so far: lots of golf, tennis, 3 months in Florida to offset the harsh NH winter, a vacation out west every other year. They have hobbies that they spend some money on, but nothing very expensive. They have some health issues, so medical costs are a factor, but overall they are healthy and active.

My dad told me at Xmas that their portfolio is bigger than when they retired.

For my projections (at 37, I have 15 years til I plan to FIRE), I increase expenses by inflation, but I separate out health care and travel. Health care goes up by more than inflation, and travel decreases as get older. I figure this will be a conservative approach if regular expenses also go down, since I'm projecting them to go up by inflation. It's my way of building in a cushion so I don't have to worry about it.

Karen

 

[Moemg]

My mother is 90 and I can definetely see how her spending has slowed down .She's still pretty mobile but travel has pretty much ceased even her monthy trips to Atlantic City are becoming yearly .Her medical hasn't really increased since doctors are pretty conservative with 90 year olds .The only thing that has increased is household help and I pay for that .So spend your money now .

 

[OAG]

Personally, I hope to have enough in my 80's to step in and help my Grandkids financially. Have to pay them back for all of the deficit spending these past 25 plus years.

 

[Jarhead*]

In another thread Jarhead posted today that he and his wife, both Medicare eligible, are spending about $12,000 pa for their medical and dental

Ha

Ha: Actually, you are only partially accurate with my $12,000.00 figure above. (I robbed the cradle, and my wife won't be eligable for Medicare until next year, so that figure will probably go down a few thousand next year).

This is an interesting thread, and one that I don't mind breaking tradition, and jumping in without a short "pithy remark".

Our friend "Cutthroat" , as I've mentioned in prior posts, has advocated spending more earlier rather than later, and that probably makes sense.
(To a point). By the same token, Cutthroat has a wife that is working full time, so his experience in this area is pretty limited.

Like you, I have been at this for 20 years withought a pension or windfall.

I have figured out, (actually long before retiring), what our tolerance level is for keeping us active and as happy as possible. We have never practiced any radical money-saving gimmics that I see expressed from time to time on this forum, but also have resisted buying anything that we don't need just because we may able to afford it.

As far as leaving a pile, that would be perfectly alright with us, if we were that fortunate.

 

[youbet]

Like you, I have been at this for 20 years withought a pension or windfall.

And that's "the real stuff" Jarhead. We all have our own unique situations......... Megacorp pensions, government pensions, SS, inheritances, part time jobs, working spouse, and on and on. Each person's circumstances, along with their personality, risk tolerance and life style preferences, suggest the course of action they should take regarding when and how to retire, withdrawal/spending rates, etc.

I enjoy following along with folks like yourself because the no pension and no windfall scenarios are the purest examples of playing the RE game.

Congratulations on making it truly on your own!

 

[cute fuzzy bunny]

I wonder how much that 'purity' comes to play. I have to admit that I try hard to consider people who were, as I was for two years before marriage, retired solely on a portfolio with no exterior income.

Long timers know an awful lot about each others circumstances and most people speak freely about their working wives, cola pensions, sixteen rental unit incomes and so forth. Newcomers might get a less than complete picture when someone whose wife earns mid six figures talks about playing it fast and loose with the investment or spending strategies.

Hey jarhead...my wifes the cradle robber...three days older than me...and you bet she hears no end of that around our birthdays.

 

[Jarhead*]

And that's "the real stuff" Jarhead. We all have our own unique situations......... Megacorp pensions, government pensions, SS, inheritances, part time jobs, working spouse, and on and on. Each person's circumstances, along with their personality, risk tolerance and life style preferences, suggest the course of action they should take regarding when and how to retire, withdrawal/spending rates, etc.

I enjoy following along with folks like yourself because the no pension and no windfall scenarios are the purest examples of playing the RE game.

Congratulations on making it truly on your own!

Youbet: Thanks for your kind words.

When I retired, a lot of the heavy lifting had already been done with our children.

Be that as it may, I also understand that without the wind at our backs since 1987, when I retired, it could have turned out to be one of the most irresponsible decisions I had ever made. (Re: investment climate).

I totally understand that, and am grateful for it.

We have had a successful retirement so far, and it has allowed me to play a lot of tournament golf and fly-fish as much as I want to.

That being said, early retirement is a decision that you have to be real careful with in my opinion. (When it comes at you in buckets, and it will, given enough time, make sure that you are funded properly).

All in all, it's been great for my wife and I, but be careful out there.