FIRE - A Guaranteed Decline in Standard of Living?

[maddythebeagle]

-- Retired does not equal unproductive. Bill, you should know better!

I wouldnt get your undies in a bunch....it was doubtful that was billy boy and we already picked it apart in that thread....as been pointed out, lots of folks continue to do something productive with their time....just maybe not doing TPS reports...

 

[Bikerdude]

I do think CPI inflation vs. wage inflation is a real issue. Willingness to fall even further behind average helps, and a conservative SWR will probably lead to a portfolio that grows over time--that is likely to help. But, it is still a real issue IMO.

I think most of the wage growth occurs early, in the first few years of employment in most working careers. After that, unless the worker moves around, is a professional or a union member his/her wage merely keeps up with inflation. And once you hit the magic 50 a 2% raise is not uncommon.

Now say you retire and live in a 3000 sq ft. home, take $10,000 vacations and have a vacation home. Then 10 yrs later your working friends have moved to a 5,000 sq ft. home, take $20,000 vacations, have 2 vacation homes and this bothers you, you should keep on working.

When I made my decision to retire I looked at how I lived and decided that I would be happy if I could continue to keep up with my own personal inflation rate. So far (7 years) I have met that goal.

One goal I never wanted to reach was being the richest guy in the Graveyard.

 

[lazyday]

If I understand correctly, lately, the benefit of productivity improvements has gone more to investors than to workers. This may color our thinking about wage inflation.

The portion of earnings going to investors/owners has increased, and is higher now than it's been for decades. That may turn around at some point, allowing wages to increase notably faster than inflation again.

 

[Helena]

While you may be happy with your current standard of living, you may feel a bit different in 30 years when your $40,000 income is only 55% of the average family income rather than 100% as it is today, and you cannot afford a flying car like everyone else has.

In 30 years I will be 85.

Can you envision blue hairs with flying cars

 

[sgeeeee]

In 30 years I will be 85.

Can you envision blue hairs with flying cars

Wooohooo. I hope so.

 

[Cb]

I'm not at all convinced the guys I left behind in cube-land are going to have a greater retirement income than me by working an extra 15 years. They'll have better pension income and SSI, and probably some remnant of current retiree health care (if they last), but I'm pretty sure most will still have pretty modest investment portfolios.

My wife and I are in the top few percent of wealth in the US today, and my guess is we always will be.

Cb
PS: of course I could always work a bit later on if I was losing sleep over my position relative to the Joneses.

 

[claire]

This is very interesting.

Personally i would opt for extreme ER (30's or 40's) over giving the best years of my life to a job which may kill me early from stress induced illnesses. I would rather take my chances and if I run out of money and am living in a van by the river then so be it, as long as I am with my DH and we are in good health and have enough to eat, some sort of roof over our heads then, ahh is this not happiness and contentment?

Plenty of leisure time, good health and covering our most basic needs which is, lets face it food, water and companionship.

Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform?

Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

Billy any thoughts on this thread?

 

[audreyh1]

I think Bernstein is talking from the point of view of an investor. He wants everyone working as long as possible and consuming as heavily as possible so that we goose this economy and make stocks go up.

He doesn't want no stinkin' LBYM ERs!

Audrey

 

[tryan]

Decline in standard of living ?!?!

Well, dual income friends just dropped 6k for a 52 inch flat panel high def TV ... of coarse they bearly got the thing in the room; then realized they needed a new entertainment center to house the beast. So I show up there and their son is still in his PJs planted firmly in the sofa ... looked like he'd been there for DAYS!

If that's an "increase" in the standard of living, I'll do just fine - without.

 

[youbet]

This is very interesting.

Personally i would opt for extreme ER (30's or 40's) over giving the best years of my life to a job which may kill me early from stress induced illnesses.

Don't forget about the option of a job or business that is not stressful or unpleasant. To me, the saddest things written on this board are from people stuck in dreaded, stressful jobs trying to hang on to reach ER!

The demise of the DBP pension and retiree healthcare actually has an upside. Without these "anchors" people might be more inclined to change jobs, start a business or new business, switch careers or whatever it takes to get out of a crap filled groove and do something new and more enjoyable during their working years.

 

[Sheryl]

Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform?

Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

And they are also being productive by educating and inspiring the rest of us. I look forward to ER as a time when I can be MORE productive or useful to the world in my free time. There are many ways to leave the world a better place, (if that's important to you) and most of them don't happen in a nine to five job.

 

[Billy]

Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform? Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

And they are also being productive by educating and inspiring the rest of us. I look forward to ER as a time when I can be MORE productive or useful to the world in my free time. There are many ways to leave the world a better place, (if that's important to you) and most of them don't happen in a nine to five job.

Thanks for your kind words! We appreciate it.

We agree about the many ways to leave the world a better place.. so many choices and places to give!

I have to tell you that I don’t ever think about not having “ a great deal of money “ in our retirement. We are way too busy being productive with our time, traveling the world, and learning life’s lessons just the same. I have free time to do what I want to do, and I have seen and been involved in cultures that I could not have become a part of in this manner if I were still working my 60-80 hours running our restaurant or running the Civil Engineering Office before we retired.

There are things that money simply can’t buy. Perspective is one of those things. Self reliance, and confidence in one’s contribution to society are others. We may not send checks to charity organizations (like those who are still working) but we are the ones there serving the food, teaching stay-at-home moms how to make a little extra cash to feed their kids, or building the tennis courts free of charge, all labor donated.

We like the first hand, one-on-one contact. Both sides of the coin are needed.

While you may be happy with your current standard of living, you may feel a bit different in 30 years when your $40,000 income is only 55% of the average family income rather than 100% as it is today, and you cannot afford a flying car like everyone else has.

The early retiree has already choosen to live at a much different standard of living as compared to her peers. She has already mentally come to grips with the idea that she's not going to keep up with the joneses.

RE: keeping up with the joneses, and having one’s standard of living decrease after retirement…. Our lives have so much more quality than they did before. I now actually have time to listen to my friends and family in a real conversation or to visit family and loved ones for more than a quick meal between traffic jams or only on holidays.

I may not have the latest and greatest in toys or wine, but I see the frantic pace people keep to pay for those things. I see the glint of fear in their eyes when they think their peers are judging them because their nails need to be done again, or their car is ‘too old” or the brand new rolling condo they bought isn’t up to standard with the one down the street.


What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it. Opportunities are everywhere. My needs and ‘requirements’ are manageable. Life is full of change, and in my opinion with countless optimistic things.

I can’t bog my current life down with imagined fears about what might be 30 years from now. I continue to learn, to grow, and to share love. I have lived a remarkable life and I am most grateful.

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[kcowan]

What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it. Opportunities are everywhere. My needs and ‘requirements’ are manageable. Life is full of change, and in my opinion with countless optimistic things.

I can’t bog my current life down with imagined fears about what might be 30 years from now. I continue to learn, to grow, and to share love. I have lived a remarkable life and I am most grateful.

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

I think this is the best advice you can get. No one can forecast what is going to happen in 30 years. Just think where you were at 30 years ago. The key element is to be flexible. I'll bet B&A did not plan to build tennis courts (congratulations), live in Thailand or write a book. But they did have the attitude to get out and experience the world as they found it. This is the secret to successful ER. Leave The Jones in your dust!

 

[bbuzzard]

What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it.

Yeah, but I still predict you will want a flying car .

 

[sgeeeee]

Yeah, but I still predict you will want a flying car .

I'm wondering if one will be enough . . . Woohoo!

 

[justin]

What luxuries do I enjoy today that I would not have consumed 30-35 years ago?

Basic cable tv - $12/month
High speed internet - $30/mo
Computers - $400-500 at least for a replacement
Microwave - $40?
Health care - much better/higher tech, at a higher price
Dining out - 16 times per month now, with an average expense of $9/outing - in 1971, I don't think eating out was as common or as high-class as it is today - maybe the average meal was burger, fries and shake at the local burger joint or a steak at the steakhouse? Now it's $10-15 plates at Macaroni Grill/Chili's and similar sit down restaurants?

Housing - my 1800 sf house was probably above average when it was built in 1972, but now it is definitely below average (median) in terms of size and amenities as compared to new homes.

I can't really think of many ways that I consume much more now than what I would have spent in 1971. I wasn't around back then, so maybe I'm missing a lot. And I do live pretty frugally now. What has changed, consumption-wise, in the last 35 years?

"Everyone" now has:

A cell phone
tons of new electronics
more/better/fancier cars
bigger houses
more stuff in general - compare the tiny closets of the typical 1970's era home vs. the humongous walk-in closets found throughout new homes today.

 

[Helena]

"Everyone" now has:

A cell phone
tons of new electronics
more/better/fancier cars
bigger houses
more stuff in general - compare the tiny closets of the typical 1970's era home vs. the humongous walk-in closets found throughout new homes today.

But none of this is necessarily a good thing.

More junk = more space = more cost for upkeep.

btw... I don't have a cell phone... don't need one.
don't want one.

 

[48Fire]

This is very interesting.

Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform?

This hit home with me today. A co-worker who I always thought was living well filed for bankruptcy. New car, fine dining, but obviously not LBYM type. Since he is 55, he will be working forever. And, he seems "productive" always working long hours, etc. But, in my opinion, productive people have something to show at the end of the day, and this poor soul will be forced to be "productive" for a long time. I am not going to feel guilty when I ER, since I parked next to him for years in my beater.

 

[Khan]

I got a cell several years ago because of work issues. Still have the same phone. They are offering a free new phone to get everyone on newer system.

17 year old 21" TV.

18 year old econobox car.

~50 year old ~1000 sq ft house on 5000 sq ft lot (been here 18 years).

backyard garden
compost pile
clothesline (umbrella type)

no iPod

hey, I'm frugal

 

[Helena]

~50 year old ~1000 sq ft house on 5000 sq ft lot (been here 18 years).

I am thinking of downsizing to a 1000 sq ft house.
I have a 40 year old 2222 sq ft house now... it is
valued at about $150,000... its paid for... but the
insurance/taxes are awful... what is the value
of your 1000 sq ft home ?


btw... my 40 year old home has a walk in closet
in every bedroom and two walk in closets in the
master bedroom... it has more storage space
than most new homes its size. New homes
devote too much space to bathrooms.

 

[Khan]

I am thinking of downsizing to a 1000 sq ft house.
I have a 40 year old 2222 sq ft house now... it is
valued at about $150,000... its paid for... but the
insurance/taxes are awful... what is the value
of your 1000 sq ft home ?


btw... my 40 year old home has a walk in closet
in every bedroom and two walk in closets in the
master bedroom... it has more storage space
than most new homes its size. New homes
devote too much space to bathrooms.

Typo on years: 28 not 18

Value: somewhere between 80K and 100K
3 bedroom
1 1/2 bath
partial finished basement

small closet in each bedroom, none full

insurance and taxes quite low
(house and car ins: $50/month)
(property tax: less than $1000/year)

 

[kramer]

I think several folks have good points and they are all right.

1) Real wages are going up over time. If you have a CPI-flat withdrawal, your consumption over time will decrease *relative* to your neighbors.

2) CPI overstates inflation. This is primarily because greater choice and product improvement are not (and probably should not be) weighted much in the index. The net effect is that a person making the same CPI-adjusted wage over time is much better off in later years. See links below for explanation.

3) Some improvements you cannot choose to go without, or probably don't want to. Even though cars have gotten cheaper and better and continue to do so, soon you won't be able to purchase a car w/o anti-lock brakes, side air bags, etc. You can't buy medical insurance that says you are only covered for 1992 level medical care. And some improvements you won't want to go without. Who doesn't want internet access? Who wants to go back to black and white TV. These are great bargains even though it takes something from your budget, etc. I think cell phones are a wonderful convenience and they are dirt cheap.

4) Medical inflation is a wild card and caveat to #2. The CPI index does NOT account for increased medical consumption due to medical advances (you can read this in the fine print at BLS). So if you are a retiree paying for health insurance, especially if not in a group risk pool, then #2 may apply differently to you.

Overall, I think you are OK having a CPI-flat withdrawal over many years. But you will probably want to grow the draw by something like 0.5% per year, on average (after 20 years this is a little over 10% more, for instance), to account for extra things that will be available that are a great bargain, as well as things that you can't opt out of. Aging and reduced desire for certain activities may partially counteract this desire for more money. Basically, life gets better with or without the extra adjustment (and I think this is from where the divergence of opinion stems)

BTW, I think that study on less spending when you are older was fundamentally flawed. Although I do think spending decreases slowly as we get older (until the very end spike).

Kramer

The following are informative and readable blog entries:

1975 Sears catalog test (vs. now):
http://cafehayek.typepad.com/hayek/2006/01/a_1975_sears_ca.html

# hours to work for sears goods:
http://cafehayek.typepad.com/hayek/2006/01/working_for_sea.html

Primer on standard vs. cost of living:
http://cafehayek.typepad.com/hayek/2006/09/a_primer_of_sta.html

CPI Bias:
http://cafehayek.typepad.com/hayek/2006/10/cpi_bias_ii.html

 

[Nords]

I think several folks have good points and they are all right.

That's never stopped a thread before!

3) Some improvements you cannot choose to go without, or probably don't want to. Even though cars have gotten cheaper and better and continue to do so, soon you won't be able to purchase a car w/o anti-lock brakes, side air bags, etc. You can't buy medical insurance that says you are only covered for 1992 level medical care. And some improvements you won't want to go without. Who doesn't want internet access? Who wants to go back to black and white TV. These are great bargains even though it takes something from your budget, etc. I think cell phones are a wonderful convenience and they are dirt cheap.

Safety improvements aren't free, but even so I think that the costs of incorporating new technology into one's lifestyle are cheaper than the costs of maintaining the old lifestyle. I think this is especially apparent when all costs are compared after adjusting for inflation. As for "which inflation" to adjust for, I agree that the CPI is flawed but it's the best common adjustment factor we have.

BTW, I think that study on less spending when you are older was fundamentally flawed. Although I do think spending decreases slowly as we get older (until the very end spike).

I think that study overlooked a lot of healthcare expense issues. However I agree that voluntary spending does decline.

Warren Buffett did a CNBC interview where the younger woman interviewing him expressed disbelief at how cheaply he lived. I gained the distinct impression that if she were in charge of his life there'd be a huge spending spree in many of Berkshire's finer retail outlets. Buffett simply said "I lack for nothing that I want to have and I'm already doing everything that I want to do. What would I spend it on?"

 

[brewer12345]

Warren Buffett did a CNBC interview where the younger woman interviewing him expressed disbelief at how cheaply he lived. I gained the distinct impression that if she were in charge of his life there'd be a huge spending spree in many of Berkshire's finer retail outlets. Buffett simply said "I lack for nothing that I want to have and I'm already doing everything that I want to do. What would I spend it on?"

That's an interesting observation. DW and I are having what I would describe as a "bountiful" year (read: mor e money than I have ever seen), but we are hard-pressed to find much of anything we want to spend some of it on. We will have some work done on the kitchen (doors starting to fall off the cabinets, many cracked )&^(^%%! tiles, and POS countertop is dissolving), but we would have had that done anyway. Other than that, the only thing I have found really compelling is a significant charitable donation, most likely to a charitable giving account (under our control and can contribute appreciated securities). I don't feel a sense of avarice (or what DW and I refer to as the "let's go buy dune buggies!" impulse), I feel a sense of gratitude.

 

[Nords]

That's an interesting observation. DW and I are having what I would describe as a "bountiful" year (read: mor e money than I have ever seen), but we are hard-pressed to find much of anything we want to spend some of it on. We will have some work done on the kitchen (doors starting to fall off the cabinets, many cracked )&^(^%%! tiles, and POS countertop is dissolving), but we would have had that done anyway. Other than that, the only thing I have found really compelling is a significant charitable donation, most likely to a charitable giving account (under our control and can contribute appreciated securities). I don't feel a sense of avarice (or what DW and I refer to as the "let's go buy dune buggies!" impulse), I feel a sense of gratitude.

Exactly-- same for us except we don't have a charitable-donation clue yet.

It's these 17% years that make us want to keep letting it ride. I didn't even get excited about that $400 nine-foot almost-new epoxy board.