Interesting article on the way expenses normally dip for a while in retirement

[Osprey]

Forbes Welcome

Article raises possibility that a higher withdrawal rate at outset is sustainable since as we age expenses will likely decline for a period before rising due to health care costs.


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[DrRoy]

I was less interested in the article than a further link to what kind of retirement spender are you. I am a globetrotter.

 

[walkinwood]

The Blanchett article is worth reading and has been discussed here before.
Also, Dirk Cotton wrote a post on this some time ago
http://www.early-retirement.org/forums/f28/more-studies-spending-declines-with-age-76933.html

The reduction of expenses is definitely worth reading about and understanding, but I do not include that in my planning. After all, those are statistical findings and does not apply to any specific individual. I do find comfort in it though since it is another point that shows that the SWR concept has a another factor in its favor.

 

[Osprey]

I was less interested in the article than a further link to what kind of retirement spender are you. I am a globetrotter.

I will likely fall into the globetrotter category with travel or snowbirding taking up a fair amount of funds.


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[2017ish]

...
The reduction of expenses is definitely worth reading about and understanding, but I do not include that in my planning. After all, those are statistical findings and does not apply to any specific individual. I do find comfort in it though since it is another point that shows that the SWR concept has a another factor in its favor.

+1
I also don't really plan on the smile spending curve, but it was indeed another set of suspenders (or another belt?) in the back of my mind. We already are projecting discretionary spending as higher than "necessary" spending, so the Blanchett findings were more support for "got enough, time to give our notices."

 

[Osprey]

+1

I also don't really plan on the smile spending curve, but it was indeed another set of suspenders (or another belt?) in the back of my mind. We already are projecting discretionary spending as higher than "necessary" spending, so the Blanchett findings were more support for "got enough, time to give our notices."

I feel the same way, makes me more likely to take the retirement leap when I become eligible. Very much a belt and suspenders person too and likely to start with low withdrawal rate.


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[Options]

My spending has already fallen much more than I planned for since retiring a year ago. Travelling more than before retirement has had no impact on spending as travelling was budgeted for. Dirk Cotton wrote about Blanchett's studies and the decline in spending some time ago (as did Scott Burns I think).

OTOH, I don't need Pfau (or anyone else) to tell me what type of retirement spender I am as I already know that from having lived with myself for quite a bit of time now (decades, in fact). Honestly, sometimes I don't how (or why) these people come up with this stuff.

 

[gerntz]

Article raises possibility that a higher withdrawal rate at outset is sustainable since as we age expenses will likely decline for a period before rising due to health care costs.

They haven't dropped five years in. Keep salivating for SS to kick in.

 

[Independent]

I put aside explicit funds to cover the early "fun stuff". They weren't part of my long term portfolio.

 

[W2R]

OTOH, I don't need Pfau (or anyone else) to tell me what type of retirement spender I am as I already know that from having lived with myself for quite a bit of time now (decades, in fact). Honestly, sometimes I don't how (or why) these people come up with this stuff.

+1

Attached is a real life chart of my normalized non-medical spending for the first 7 years of retirement, from age 61-68. (The 2016 spending is projected from my spending so far this year.)

Often it is theoretically said that non-medical retiree spending follows a downward trend throughout retirement. Does this look like that? It sure doesn't to me.

I agree with you completely, Options, when you said "I don't know how (or why) these people come up with this stuff"! We are individuals and have different spending habits and patterns.

 

[MichaelB]

One thing bothers me about this conclusion. When looking at the Consumer Expenditure Survey, expenses do fall as people age. Income falls faster, though, and at age 75 the net is negative (at the median). It's not at all clear whether the decline in spending is voluntary or the result of not having enough money.
See here http://www.bls.gov/cex/2014/combined/age.pdf

 

[Options]

+1

Attached is a real life chart of my normalized non-medical spending for the first 7 years of retirement, from age 61-68. (The 2016 spending is projected from my spending so far this year.)

Often it is theoretically said that non-medical retiree spending follows a downward trend throughout retirement. Does this look like that? It sure doesn't to me.

I agree with you completely, Options, when you said "I don't know how (or why) these people come up with this stuff"! We are individuals and have different spending habits and patterns.

Well let me check myself before I come off as too dismissive (overconfidence check!). The other side of this is that more and more of these studies--chief among them the one by Blanchett cited by both Pfau and Cotton--are confirming the "smile" spending in pattern for most retirees overall. IIRC, they used some kind of government spending survey (but I can't remember the name) and measured several retiree cohorts over decades.

Someone (maybe Pfau in his blog posts) states that spending declines roughly 1% a year beginning with retirement. From your chart, your spending (and mine as well) confirms this. Does this apply to everyone? Of course not, but it can be instructive, or at least educational. In my case, I'm not changing my spending assumptions even with lower than expected spending in retirement and using this pleasant surprise instead as a sort of added buffer. Pfau also recommends not changing spending assumptions in light of the smile spending pattern due to the unknown.

 

[Osprey]

One thing bothers me about this conclusion. When looking at the Consumer Expenditure Survey, expenses do fall as people age. Income falls faster, though, and at age 75 the net is negative (at the median). It's not at all clear whether the decline in spending is voluntary or the result of not having enough money.

See here http://www.bls.gov/cex/2014/combined/age.pdf

Interesting table; some decreased spending may be due to loss of income and some may be due to slowing down. My parents, in their eighties, are no longer taking trips requiring long flights and are slowing down and not on the go as much as in their sixties and seventies.


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[Sunset]

+1

Attached is a real life chart of my normalized non-medical spending for the first 7 years of retirement, from age 61-68. (The 2016 spending is projected from my spending so far this year.)

Often it is theoretically said that non-medical retiree spending follows a downward trend throughout retirement. Does this look like that? It sure doesn't to me.

I agree with you completely, Options, when you said "I don't know how (or why) these people come up with this stuff"! We are individuals and have different spending habits and patterns.

If that spike is your buying a new house, I don't think that is really spending, more like an alternative investment, and the dividend is (what rent would cost - taxes, upkeep, insurance difference from rental).

 

[W2R]

If that spike is your buying a new house, I don't think that is really spending, more like an alternative investment, and the dividend is (what rent would cost - taxes, upkeep, insurance difference from rental).

Yes, that's the cost of my house and move and so on, minus what I got from selling my prior house. No rent though.

 

[Danmar]

Interesting table; some decreased spending may be due to loss of income and some may be due to slowing down. My parents, in their eighties, are no longer taking trips requiring long flights and are slowing down and not on the go as much as in their sixties and seventies.


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Agree that this is key. If spending declines, why? If it is because of less income ( doubtful in my view) it is less a predictor. If it is because we are slowing down and don't want to spend as much, more significant, I think.

My case, retired 10 years (66 years old) and no noticeable spending decline if you exclude capital purchases.

 

[Options]

Agree that this is key. If spending declines, why? If it is because of less income ( doubtful in my view) it is less a predictor. If it is because we are slowing down and don't want to spend as much, more significant, I think.

My case, retired 10 years (66 years old) and no noticeable spending decline if you exclude capital purchases.

Here the explanation within the post (note the decline varies by household income):

Blanchett observes that the spending smile reflects the same types of outcomes we have described thus far. At the start of retirement, retirees spend more as they enjoy traveling, eating out, and other types of discretionary expenses. As they continue to age, retirees tend to slow down and spend less.

However, while discretionary expenses are declining, health costs tend to rise, and at some point later in retirement, these rising health costs offset reductions in other spending categories

Edited to add Dirk Cotton's post on the same subject:

http://www.theretirementcafe.com/2015/04/spending-typically-declines-as-we-age.html

I suspect that some readers interpret the spending smile as showing that spending is high in early retirement, becomes lower until age 75 and then returns to nearly the level of early retirement near age 90, but this is not a graph of total annual spending. It is a graph of the annual real change in consumption for a typical retiree. In other words, it shows a decrease (and very rarely an increase) in spending at say, age 61 compared to age 60. It shows not the change of spending, but the rate of that change.

The rate of the decrease changes throughout retirement, but because these rates are nearly always negative (below the zero percent line on the y-axis in Blanchett's chart above), spending constantly decreases, but at different speeds.

 

[walkinwood]

One thing bothers me about this conclusion. When looking at the Consumer Expenditure Survey, expenses do fall as people age. Income falls faster, though, and at age 75 the net is negative (at the median). It's not at all clear whether the decline in spending is voluntary or the result of not having enough money.
See here http://www.bls.gov/cex/2014/combined/age.pdf

Bernicke looked into this and concluded that the spending decline is voluntary. I can't remember if Blanchett reached the same conclusion.

 

[walkinwood]

...Does this apply to everyone? Of course not, but it can be instructive, or at least educational. ..

True, It is the way I see it too.

I put more weight on statistical results than on anecdotes. (After reading all the fine print, of course)

 

[Koolau]

One thing bothers me about this conclusion. When looking at the Consumer Expenditure Survey, expenses do fall as people age. Income falls faster, though, and at age 75 the net is negative (at the median). It's not at all clear whether the decline in spending is voluntary or the result of not having enough money.
See here http://www.bls.gov/cex/2014/combined/age.pdf

I didn't read the whole article, but my assumption is that the lower income was primarily "earned" income. That makes sense. By the time we're 75, most of us are retired or unemployable. The lack of earned income doesn't always mean lack of assets. I happened to fit the "less-income profile" starting at 58. Still, I spend more now than I did back when I had earned income. YMMV

 

[kcowan]

I find that, as I work my way through the bucket list, I am not adding items at the same rate. Decline of spending has not kicked in yet. Loss of animals and relatives has freed us for the moment to travel so spike is continuing for a few years.

 

[Danmar]

Actually this thread got me thinking a bit more. I looked at my spending excluding capital items (home purchases) and alimony since retirement. The results surprised me a bit as follows , indexed to 2007 my first full year of retirement:
2007- 100%
2008- 80%
2009- 54%
2010- 74%
2011- 65%
2012- 55%
2013- 84%
2014- 75%
2015- 92%
2016- 65%

Doesn't seem to be any pattern other than looks like I went crazy in the first year, cut back in 2009 (financial crises), and spent more in 2015 ( daughter's wedding). I was thinking my spending was more constant than this. Interesting, at least to me.

 

[MichaelB]

Actually this thread got me thinking a bit more. I looked at my spending excluding capital items (home purchases) and alimony since retirement. The results surprised me a bit as follows , indexed to 2007 my first full year of retirement:
2007- 100
2008- 80
2009- 54
2010- 74
2011- 65
2012- 55
2013- 84
2014- 75
2015- 92
2016- 65

Doesn't seem to be any pattern other than looks like I went crazy in the first year, cut back in 2009 (financial crises), and spent more in 2015 ( daughter's wedding). I was thinking my spending was more constant than this. Interesting, at least to me.

Just to clarify, these are percentages, with 2007 as the base year, so 2016 is 65% of the amount spent in the year 2007?

 

[Danmar]

Just to clarify, these are percentages, with 2007 as the base year, so 2016 is 65% of the amount spent in the year 2007?

Correct, should have made that clearer. Will amend post.

 

[REWahoo]

First ten years, with year 1 (2006) = 100.

Other than the very cautious spending in the first year of retirement, our numbers do resemble a smile.

Thankfully the uptick in spending starting in 2013 isn't due to healthcare.