Retirement Expenses - Steady or Declining?

[mountainsoft]

Not counting increases for inflation, are you planning for a steady annual expense throughout retirement (i.e. 45K per year forever), or a declining expense model (i.e. 50K during the first ten Go-Go years, 45K during the second ten Slow-Go years, 40K during the remaining No-Go years)?

If you're already retired, have your expenses gone up, remained steady, or declined over time?

 

[street]

I have only been retired for 3.5 years but my expenses went down from what we thought he would need. We did pad your expenses for a plan for the long haul in retirement but it is considerable less.

 

[Jerry1]

My plan assumes a steady amount (adjusted for inflation). However, my expectation is more of a curved assumption. More per year in the beginning, less in the middle and then a lot in the final years.

 

[audreyh1]

Certainly not planning on a declining expense model. Even if our personal expenses drop, we may have to increase outlays for other family members, or simply choose to do so. Then the later years - we are self-funding for long-term care, so we plan for potentially large outlays for each of us.

Our expenses were higher at first 3 years, dropped for about 7 years, even before accounting for inflation, then started steadily rising again.

 

[braumeister]

More per year in the beginning, less in the middle and then a lot in the final years.

we are self-funding for long-term care, so we plan for potentially large outlays for each of us.

This is very sensible.
Just looking at my mother's situation, she lived comfortably in her 80s on around $1K per month. But in her 90s it was over $7K a month due to assisted living/memory care, etc. So she went through her carefully nurtured stash rather quickly in the final years. Fortunately, it lasted nearly as long as she did, so she was OK, but that's not something you want to gamble on.

 

[RobbieB]

I think ours will be declining or rather it needs to be -

But we are closing in on the end of the home improvements and that will help. Step daughter in second year at UCLA will hurt.

Oh well, lets try 2 more years of really high spending!

 

[Rustic23]

So far ours has been steady with a slight decline in the last year. However, I believe audreyh1 has the best model. We traveled more in the first couple of years, but slacked off this year. Medical/LTC would be the increase as we age, while travel drops to near 0. However DW's parents were still traveling at 90! He had TRICARE for Life so medical did not really kick in that hard.

 

[Red Badger]

Ours should be high now, but flat lining at a lower level in a few years. We've traveled a lot and will do so for a couple more years. Home needs a roof and an updated kitchen. Also bought a new car with cash this year. Then, we may also move in the next year or so. After all of that, things [-]should[/-] better taper off.

 

[scrabbler1]

When I was putting together my ER plan back in 2007-08, I separated my expenses into 2 categories: medical and non-medical. I did this so that I could assign a separate inflation rate to each type. I created a spreadsheet which projected from age 45, my ER age in 2008, through 2028, when I would turn 65 and gain access to Medicare and all of my "reinforcements" such as my frozen company pension, unfettered access to my rollover IRA, and SS.


For the medical expenses, I assigned 10% inflation, while for non-med I assigned 3%. In the last 10 years, my medical expenses have very volatile, increasing then declining when I took on a bare-bones insurance plan before the ACA exchanges came around in 2014. Since 2015, when I got sick, my expenses have risen but stabilized somewhat. Rising HI premiums will put more upward pressure on my med expenses unless I can regain my ACA subsidy and avoid the cliff.


My non-medical expenses have been rather flat. The only spikes among them have been income taxes when my income spiked. But I don't worry about that because the added income will always be available to cover the added taxes.


Because my portfolio has grown, my WR has been pretty flat, too, around 2%.

 

[unclemick]

Not counting increases for inflation, are you planning for a steady annual expense throughout retirement (i.e. 45K per year forever), or a declining expense model (i.e. 50K during the first ten Go-Go years, 45K during the second ten Slow-Go years, 40K during the remaining No-Go years)?

If you're already retired, have your expenses gone up, remained steady, or declined over time?

Looking forward planed steady via FireCalc and ORP and other planners. Then life happened.

Hindsight of 25 years of ER without going into detail - really el cheapo early for maybe 10 years, lightened up a tad, then Katrina, major move and unplanned deaths, remarriage, etc, etc.

Net net - annual expense high to low varied by a factor of ten low to high. I certainly didn't plan that. BUT if you maintain an agile, mobile, and hostile attitude you can adjust expenses to fit the situation. 1993 to 2019 Mr Market had a few minor dips which were easily compensated for with expenses adjustment and of course re balancing.

heh heh heh - I had a plan and then life required some er adjustments.

 

[Teacher Terry]

Retired almost 8 years. Between years 3-7 we did a lot of traveling so spent more. Doing less now so costs are going down.

 

[Dtail]

Looking forward planed steady via FireCalc and ORP and other planners. Then life happened.

Hindsight of 25 years of ER without going into detail - really el cheapo early for maybe 10 years, lightened up a tad, then Katrina, major move and unplanned deaths, remarriage, etc, etc.

Net net - annual expense high to low varied by a factor of ten low to high. I certainly didn't plan that. BUT if you maintain an agile, mobile, and hostile attitude you can adjust expenses to fit the situation. 1993 to 2019 Mr Market had a few minor dips which were easily compensated for with expenses adjustment and of course re balancing.

heh heh heh - I had a plan and then life required some er adjustments.

hostile attitude?

 

[HarveyS]

My plan has my spending money increasing 3.5%/year now until age 80. At age 80 the spending money amount is cut in half. Then that new amount increases at 3.5%/year until age 100. After 5 years of ER, I have yet to spend 100% of the allocated spending money in any year. Gotta learn to "blow the dough".
Why 3.5% increase? Because somewhere, sometime, I read that was the average inflation over the last 60 or 90 years. I cannot find the data source again, and am comfortable if that value overestimates inflation.
So, to answer the question, I have a two-step plan. Steady (with an inflation kicker) until age 80. Then steady again from a lower level (with an inflation kicker).

 

[marko]

We expect to spend the same amount of money but on different things as we age but we're not there yet (age 68 and 60).

Expensive travel, boats, cars etc. eventually being replaced by health costs, "practicality" and perhaps paying for things we do ourselves now (yard/home maintenance etc). We're already farming out a lot of stuff we used to do on our own for the boat.

And expensive dinners giving way to early bird specials

Mom is now 90 and, despite a ton of spunk and a ton of money just doesn't spend much money at all...happy reading and going to dinner 5 nights a week (in her 28 year old Corolla).

 

[Teacher Terry]

Marko, I love that your mom is not cooking anymore. My husband was gone for 2 weeks and I went out daily for lunch.

 

[marko]

Not cooking anymore? Mom NEVER cooked at all! Growing up we ate in restaurants our whole lives; breakfast, lunch and dinner. "Eating in" was take-out. The best she'd do is cereal on some mornings. She tries but is just not good at anything beyond a sandwich...her own mom was the same way.

Seriously, her stove is 56 years old and is essentially brand new.

Marko, I love that your mom is not cooking anymore. My husband was gone for 2 weeks and I went out daily for lunch.

 

[audreyh1]

hostile attitude?

Coach Jake Gaither

One story is that the president of the college could not find anyone else to take the job. Gaither worked very hard to motivate his players. He would say, "I like my boys to be agile, mobile, and hostile."

 

[Bamaman]

Our expenses are pretty stable--at a little too much. We'd lower out expenses somewhat if my wife didn't have frugal travel as a hobby. She keeps coming up with international travel that's too cheap to pass up.

She leaves tomorrow for London, Paris & Barcelona. We just got back from Paris and Barcelona in June, but this trip is with her older daughter. She says she's going to have fun with her RMD's.

 

[mountainsoft]

Thanks for the input everyone...

I've been planning steady expenses throughout retirement, thinking we might spend more on recreation during the early years, and more on medical during the later years. However, I read a few articles lately talking about spending differences in the Go-Go, Slow-Go, and No-Go stages so I thought maybe I was being overly cautious. It sounds like it's probably safer to stick with my original plan with steady expenses.

I am also assuming our retirement expenses will be about the same as they are now. Some costs will go down, but others will go up (i.e. medical). So I think it will work out about the same.

HarveyS,

I use a 3.2% inflation rate myself as that was the historical average I had seen somewhere.

 

[HI Bill]

If we make it to 67 or 70 (13-16 years from now) and have as much or more than I do now in investments, SS will kick in, and I plan to increase spending by $50K annually, while we (hopefully) still have a few years left to enjoy it! Maybe buying a better house or condo, and / or a fancy sports car! Maybe a serious upgrade on the home theater speakers and projector, if the hearing and vision hold up...!

 

[pb4uski]

My plan assumes a steady amount (adjusted for inflation). However, my expectation is more of a curved assumption. More per year in the beginning, less in the middle and then a lot in the final years.

+1

 

[davismills]

Retired in 2013 and expenses actually have been less than we forecasted. Possibly because we're a bit anchored with the last surviving parent. About 10 percent less.

Had we been free to travel at will, they could have easily been 10 percent more.

 

[GravitySucks]

I expect it to go down at 65 when Medicare kicks in and again at around 75 when travel might calm down. Looking at mom and dad and the other relatives after 80 they hardly spend anything. Even most medical cost didn't increase enough to make a difference.
In reality I expect to make revisions every 5 years. My first five were very frugal as I worried about SoRR. Last year I loosened up some but couldn't find enough to spend it on. This year a knee injury and family issues have kept me grounded, but home repairs all came at once. So while this 5 year period is supposed to be the big spending years I doubt that it will be over all.

 

[HI Bill]

Check out the MarketWatch calculator. It has go-go, slow-go, and no-go periods, which are adjustable, and account for changes in taxes, health care, and other spending categories as one ages.

https://www.marketwatch.com/calculator/retirement/retirement-planning-calculator

 

[Cobra9777]

My plan assumes a steady amount (adjusted for inflation). However, my expectation is more of a curved assumption. More per year in the beginning, less in the middle and then a lot in the final years.

+1

I was going to say +2. But then I opened my spreadsheet and looked at the spending projections for the next 30+ years. It's all in nominal dollars with individual rates of inflation for each of 19 categories (high on medical/energy, 1-3% on most everything else). I've also made some very detailed assumptions about consumption patterns, such as heavy travel, hobbies, and home improvements early on, then phasing out at various rates as we age. Less driving and fewer cars as we age, which impacts several categories like gas, insurance, maintenance, even tolls/registration/inspection. More medical expenses as we age. More household services as we age, like someone else to mow and do other household maintenance. Lots of discrete life events as well, such as downsizing the huge house at ~70, Medicare at 65, property tax freeze at 65, and LTC later on. Downsizing the house impacts multiple categories in a very significant way.

Anywho... I zeroed out all the inflation rates and the resulting trend line was a fairly steady decline over the years. Only exception was a sharp decline in the year we downsized and a sharp increase very late in life when LTC kicks in (big unknown). Otherwise, very steady downward trend. I was a little surprised by this, so looking at the details... lots of categories are flat like recurring monthly bills, groceries, etc. Yes, medical and home services are up, but this is more than offset by other declines, mainly travel, hobbies, home improvement, and occasional new cars. Other smaller declines (excluding those related to the downsize) include everything related to fewer cars and less driving, less entertainment, less eating out, and less new clothing/shoes.

So there you have it. Even though medical and home services go up a lot as we age, as a percentage of total spending, those categories are significantly less than our current spend on travel, home improvement, hobbies, new cars, etc. I was a little surprised by this result. I haven't looked at this spending tab in a long time and I always look at it with inflation. So maybe this exercise will prompt me to take a closer look at some of the assumptions, especially related to medical late in life.