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Hedonic Tilt - Spend More Now, Less Later (in retirement)
Old 03-27-2016, 09:39 AM   #1
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Hedonic Tilt - Spend More Now, Less Later (in retirement)

This has been mentioned in passing in a few threads, thought it might warrant it's own discussion. It just factors in the desire to spend relatitively more on the front end while we're more active/able and accepting and planning on lower spending later when travel and other activities that will be too physically demanding. Not for everyone of course. Lots of ways to build this into a plan, here's just one example with numbers...

https://assetbuilder.com/knowledge-c...now-less-later

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Allow me to introduce the Hedonic Tilt. That’s a formal title for what most of us want to do in retirement. We want to spend more now, while we can enjoy it. And we’ll cope with spending less later, when our ability to enjoy spending may have gone by.

It’s an entirely reasonable desire. The only problem is that if we get too enthusiastic about spending today, we might have a really big problem in the tomorrow we don’t want to think about.

Fortunately, there is a simple solution: take a constant amount from your retirement funds and adjust, slowly, to the slow loss of your higher purchasing power.
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Old 03-27-2016, 09:44 AM   #2
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Fortunately, there is a simple solution: take a constant amount from your retirement funds and adjust, slowly, to the slow loss of your higher purchasing power.
There's another simple solution. Retire with enough money that you can have what you want and need, both now and in your later years.

Of course, that assumes non-infinite consumer urges, an attitude that Madison Avenue types probably regard as being completely despicable. One would have to settle on some particular lifestyle as being "enough".

How dreadful to contemplate the retiree who has no desire for a Lamborghini, a trip around the world, or a giant mansion, but instead is completely happy and fulfilled with only a used Toyota, a trip across town, and a modest home. It's almost unpatriotic.
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Old 03-27-2016, 09:46 AM   #3
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There is also the fact that no one will ever starve in the USA. Or be without the basic necessities. Worse case, there are reverse mortgages, credit cards, etc. to fall back on when you only need to spend the minimum.

Spending money now while you can enjoy it makes sense. I am not sure if I would like being told 'no' when I want to go on a trip at 80, so I save. Or having to live in a downtrodden, unsafe area I would not like.

But from a 'being able to live' perspective, even if you are 100% out of money, you can do fine.
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Old 03-27-2016, 09:58 AM   #4
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I don't think you have to mention Lamborghini's, around the world trips, or giant mansions. Many people might like to spend a little more in the early years of retirement. A new car, modest trips, etc. It's not a mortal sin to spend a bit of money as long as you can afford it.
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Old 03-27-2016, 10:12 AM   #5
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We've given this a fair amount of thought, and simply can't envision this occurring. What we imagine will happen in our case, is that our spending will either remain flat, or possibly even tilt upward. The reason being that in our 'younger' :-) years we're likely spending less because physical pursuits, which deliver a heck of a lot of buck for the bang, are relatively inexpensive. If/when physical decline occurs, I see us turning more frequently to all-in type of trips instead, likely in the luxury category. Similarly, I can see us upgrading our RV and cars, and funding family vacations to ensure quality time with the grandkids.

If anything, I feel like our ER years should be our leaner years, given all this.
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Old 03-27-2016, 10:44 AM   #6
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I see this as very reasonable, based on our own experiences and that of our parents, and it will likely be how we arrange our spending when I finally pull the plug on work.
We want to do bigger, more difficult travel early on, and will likely pull back to lesser travels as we age.
I don't expect to live over-long, and DH is 8 years ahead of me.
"Gather ye rosebuds while ye may" and all that.
I don't have much interest in home renovation, big household projects, elaborate hobbies, and the like, so travel and spending time with friends are really our only large cost categories, now. I don't see that changing dramatically as we get older.
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Old 03-27-2016, 10:45 AM   #7
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I believe that studies I have seen on retirement spending do bear out that on average spending does decline in later years as you do less, except for medical costs. However, the average can mask a lot of individual variation.
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Old 03-27-2016, 11:08 AM   #8
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Lets try a hypothetical and see how it feels . . .

"I know I can't really afford to buy a new BMW now but I can still make the numbers work if I promise that I'll buy a used Hyundai as my very next car when I'm older and not quite so hip."
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Old 03-27-2016, 11:20 AM   #9
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After decades of modest living it feels unnatural to spend freely. If I can be content at less than a 4% WR I'm not going to invent ways to spend more.
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Old 03-27-2016, 11:29 AM   #10
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Affording "Travel" seems to be assumed as a tradeoff here but there are plenty of ways to travel that are much more fulfilling and lower cost than the Four Seasons kind. Just use one's frugality skills for "Travel" as in every other sphere, and go.
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Old 03-27-2016, 11:36 AM   #11
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Lets try a hypothetical and see how it feels . . .

"I know I can't really afford to buy a new BMW now but I can still make the numbers work if I promise that I'll buy a used Hyundai as my very next car when I'm older and not quite so hip."
or maybe exchange "new BMW" with "1966 Mustang Convertible"

Have a friend that got into this, and really enjoys all the trips and car shows camaraderie. And with this car you will still be cool no matter how old you get!
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Old 03-27-2016, 11:56 AM   #12
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Originally Posted by Gone4Good View Post
Lets try a hypothetical and see how it feels . . .

"I know I can't really afford to buy a new BMW now but I can still make the numbers work if I promise that I'll buy a used Hyundai as my very next car when I'm older and not quite so hip."
Since DW and I have owned BMW, Audi & Volvo's in the past, and we've owned nothing but basic Toyotas and Hondas since 2001 - we can demonstrably say yes to your hypothetical. I am sure many here can.

Caveat: Some people need to experience the $$$$ premium (and sometimes more frequent) to maintain a marquee car firsthand to be convinced they can readily do without - I confess we needed to learn the hard way.
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Old 03-27-2016, 12:06 PM   #13
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Since DW and I have owned BMW, Audi & Volvo's in the past, and we've owned nothing but basic Toyotas and Hondas since 2001 - we can demonstrably say yes to your hypothetical. I am sure many here can...
Is it quite the same thing, though?

Certainly downsizing your current lifestyle to work towards early retirement makes a lot of sense to most everyone here. But promising to downsize in the future so you can spend more today sounds like the opposite of that. It actually sounds a lot like what many folks who can't afford to retire do.

I'd worry that I was just rationalizing lifestyle creep.

And I'd also add that people are terrible at projecting their future needs and wants. Downsizing today because I'm willfully choosing to spend less is a completely different thing than being forced to spend less in the future because younger me decided I wouldn't need the cash.
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Old 03-27-2016, 12:10 PM   #14
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The older I get the less I need. Of course a good hobby is important.
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Old 03-27-2016, 12:15 PM   #15
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Sometimes I think I would like to upgrade to a luxury home. And then I think "well, if I had worked five more years......nah!"

But maybe I could splurge a little bit without worrying about running out of money. Like maybe a new TV or another trip.
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Old 03-27-2016, 12:20 PM   #16
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Here is a recent article where Burns follows up on and discusses Hedonic Tilt (it is at the bottom of the article). Most of what this article is pointing out is that if you are 65 and have, say, a portfolio with a 95% chance of surviving 30 years, the true likelihood that you will actually run out of money in 30 years is not 5%, rather it is less than 1% because you are unlikely to live that long. He runs through some calculations showing the chance of actually going broke by combining portfolio survival with life expectancy. And, he shows that if he uses his hedonic tilt method, you can withdraw much more in the early years.

https://assetbuilder.com/knowledge-c...g-spend-freely
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Old 03-27-2016, 12:42 PM   #17
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I think resource consumption, both on what and when, is a highly personal thing. Folks that think that their way must be the "right way" for everyone need to develop a bit of awareness about the world beyond themselves.

I've been fully FIRE'd for almost 10 years and DW for 13. As we look back on our lifestyle decisions, we have fewer regrets over resources consumed early that we wish we hadn't than opportunities missed where we wish we would have.

Although our regrets are very few, given the chance for a "do-over" we'd likely go ahead and experience some things while younger that we passed on this time around.

Everybody calls their own shots and lives with the consequences. And everybody is different in regard to justifying the outcome in their own minds.
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Old 03-27-2016, 12:43 PM   #18
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We find that our spending on things has already gone way down, but our spending on services (other people doing things for us that we either used to do, or never knew how to do) has gone way, way up.

Example: We just got a quote for mowing our 3-acre lawn: $290 per mow. Over a season, that adds up to the cost of a very nice lawn tractor. So we are going to buy one.
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Old 03-27-2016, 12:45 PM   #19
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Originally Posted by Sarah in SC View Post
I see this as very reasonable, based on our own experiences and that of our parents, and it will likely be how we arrange our spending when I finally pull the plug on work.
We want to do bigger, more difficult travel early on, and will likely pull back to lesser travels as we age.
.
That is a great idea . I am so glad I did all the adventure travel in my 40's & 50's . Let's face it white water rafting is not as much fun at 69.
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Old 03-27-2016, 01:00 PM   #20
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That is a great idea . I am so glad I did all the adventure travel in my 40's & 50's . Let's face it white water rafting is not as much fun at 69.
In this pic, taken last autumn on the Nantahala River (NC), DW and I are both 68 yrs old. It was still fun. Admittedly, 5 yrs ago we would have been doing it in our kayaks and without the guide!

But, I agree, procrastinating on experiences likely best enjoyed when younger just to have "extra padding" in the FIRE portfolio later is risky business. We've really cut back on our paddling adventures due to back problems I've developed and DW's shrinking "sense of adventure."

BTW, I'm the guy in the blue baseball cap in the left front seat. DW (who picked her seat based on not wanting to experience as much frigid water) is in the left rear seat in the light colored Tilly hat. We were on a camping trip to Smoky Mountain National Park with some friends (who are with us in the raft).
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