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Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 06:30 PM   #1
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Scott Burns -- You're Saving Too Much to Retire

http://www.dallasnews.com/sharedcont...s.1d03cbf.html

Six years ago, two academic researchers, Kenn Tacchino and Cynthia Saltzman, examined spending patterns as people age. Their findings, which were discussed in this column, showed that spending peaks in our late 50s and early 60s, declines in our late 60s and declines still more after age 75. They suggested many people might be better prepared for retirement than they thought they were.

Now Mr. Bernicke has taken a big step forward. Writing in the June issue of the Journal of Financial Planning, he introduces "Reality Retirement Planning" based on an even closer examination of our spending as we age.

The 2002 Consumer Expenditure Survey, for instance, shows that average annual expenditures decline from $44,330 for the 55-to-64 age group to only $23,759 for those over 75. That's a decline of more than 46 percent.


Reviewing the costs

A closer examination using data from the H.S. Dent Foundation shows that expenditures declining from $45,862 for the 55-to-59 age group to $38,218 for the 60-to-64 age group, $32,103 for the 65-to-69 age group, $27,517 for the 70-to-74 age group and $21,402 for the 75-plus age group. That's a decline of more than 50 percent.

Like Mr. Tacchino and Ms. Saltzman, Mr. Bernicke also shows that the decline isn't forced: Net worth actually increases as we age from 55 to 75.

So what happens if you substitute Mr. Bernicke's Reality Retirement Planning for conventional retirement planning? Under conventional assumptions, the spending needs of his example couple rise from $60,000 at age 55 to $125,626 at age 80. Under reality assumptions, spending needs don't surpass $60,000 until age 81, reaching $67,963 at age 85.

Under conventional assumptions, the example couple's spending starts to overwhelm their $800,000 nest egg, exhausting it by age 80. Under reality assumptions, the nest egg is never overwhelmed. It shrinks slightly during the first seven years, then grows. It builds to $2,364,871 by age 85.

Subjected to Monte Carlo simulation testing, a method for examining outcomes under uncertain conditions, the plan fails 87 percent of the time with conventional spending assumptions. It never fails zero percent under reality assumptions.

</snip>


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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 06:37 PM   #2
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Re: Scott Burns -- You're Saving Too Much to Retire

Here's a link to Ty Bernicke's article in the June 2005 Journal of Financial Planning.

Reality Retirement Planning: A New Paradigm for an Old Science


http://www.fpanet.org/journal/articl...p0605-art7.cfm


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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 06:44 PM   #3
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Re: Scott Burns -- You're Saving Too Much to Retire

I'd like to see the detail behind the numbers. How does the budget morph from $44K to $24K, and is the $24K inflation-adjusted?
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 06:59 PM   #4
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Re: Scott Burns -- You're Saving Too Much to Retire

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Originally Posted by retire@40
I'd like to see the detail behind the numbers.* How does the budget morph from $44K to $24K, and is the $24K inflation-adjusted?
Table One in the link below show the break down in expenses for each age group.

http://www.fpanet.org/journal/articl...p0605-art7.cfm

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 07:01 PM   #5
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Re: Scott Burns -- You're Saving Too Much to Retire

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Originally Posted by Cut-Throat
Bottom line is that you pretty much have all your furniture. The latest model Lexus does not have the 'Chic Magnet' appeal that it did when you were 40. You have traveled pretty much everywhere you've wanted to. And you are pretty much content to sit in the rocker with your Glen Livet Manhatten to reflect upon the Glory of your Life! 8)

Yep, that's me. *And the best part is the "glory" is still going.... *

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 07:13 PM   #6
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Re: Scott Burns -- You're Saving Too Much to Retire

I just went to my budget in present dollars and made adjustments to it as I would predict it when I am 65 and over. My actual budget is about $50K and when I looked at my age 65 budget in present dollars, the bottom line was about $25K. Interesting, I never looked at it that way before.

I might be able to completely RE sooner than I thought

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 10:23 PM   #7
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Re: Scott Burns -- You're Saving Too Much to Retire

I had a gut feel that spending doesn't constantly increase as we age (assuming no major long term health problems).
I was thinking that it flatens out and I was afraid to say it declines.
Unless you have some expensive hobbies I believe the articles.

On my simple way of computing my financial retirement I come up with the following
Home paid for in full $300K
Investments est on 4/1/06 $1.4m
@ 61 pension of 13K
@ 63 SS of 22K
Spending est starting @51 $45K growing 4%/year after tax spending
Life expentancy 84
My spread sheet tell me that if I can net a 5% after tax return on my investment at 84 I will be spending $164K/year
Investment portfolio will be $2.5m
House will be worth $557 assumes it grows 2%/year.

My mother is 86 & lives in a retirement home a small pension, ss & a net worth of 180K and she is living well. Has heath problems but is doing well. If she can do it so can I.




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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 10:45 PM   #8
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Re: Scott Burns -- You're Saving Too Much to Retire

Hmmm, *I don't doubt the statistics are correct, but are the conclusions valid? *Instead of comparing spending accross different "generations", what would actual, inflation adjusted spending look like within one group as it ages? *Might younger generations simply spend more at all ages...partially invalidating the premise.

Maybe they addressed this and i missed it* *
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-16-2005, 11:25 PM   #9
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by R_K
Hmmm, I don't doubt the statistics are correct, but are the conclusions valid? Instead of comparing spending accross different "generations", what would actual, inflation adjusted spending look like within one group as it ages? Might younger generations simply spend more at all ages...partially invalidating the premise.

Maybe they addressed this and i missed it
My thoughts exactly R_K!

My concern is that today's 55 year olds have a vastly different spending mindset than today's 75 year old had back when they were 55 20 years ago (at least, IMO). So, does their study track the SAME PEOPLE from age 55-80, or does it simply take a snapshot of today and look at both 55 year olds and 80 year olds? If the later, then I fear that the study is woefully incorrect in its assumption that todays 55 year olds have the same spending habits as today's 80 year olds did when they were 55.

ALSO....an interesting point: you frequently hear the ads about the ravages of long-term care. How does the cost of nursing homes/etc. play into the averages quoted? $21,402/year/person for a 75+ year old sure doesn't sound like they are spending much time in a nursing home or have specialized care they are paying for out of their own pocket...and don't tell me that they're paying $15,000/year in premiums on a LTC policy.

So, either the $21,402 figure is a little low...or perhaps the fear of LTC costs is overblown to make the sales pitches of the LTC companies more attractive?

Does anyone know of a lie statistic listing the total number of elderly (i.e. over 65) people who are currently in a nursing home/assisted living facility, and the average length of time each person has been there?
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 12:04 AM   #10
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by Cut-Throat
Bottom line is that you pretty much have all your furniture. The latest model Lexus does not have the 'Chic Magnet' appeal that it did when you were 40. You have traveled pretty much everywhere you've wanted to. And you are pretty much content to sit in the rocker with your Glen Livet Manhatten to reflect upon the Glory of your Life! 8)

Cutthroat: There is a lot of truth in your reasoning, and the articles.

I'm not an engineer, and I still have no idea what a spread sheet is.

But this much I know. When I retired 19 years ago at 49, the kids were pretty much raised, so there was just my wife and I.

We were spending $4,000.00 a month then. That is about the amount we are spending now.

When we first retired, I was doing a lot of traveling to out of town golf tournaments, and fly-fishing. For my wife's mental health we also did quite a lot of traveling. (Not overseas, but all over this country).

While I'm only 68 at this point, and not ready to reflect on prev. glories, our priorities have changed a lot since we were 49 year old "kids".

Both of us find traveling to be a bit of a hastle. (We both love where we're at). I now play most of my golf locally, and also fly-fish locally.

The article, and your attitude about being kind to the "young you", makes perfect sense, and I feel that is what we did for ourselves.

We still have the home that we moved into 19 years ago, when I retired, and we still have 3 cars. (Need p/up for brush hauling, etc. and for my fishing.)

We still do whatever we feel like, but the demands aren't as strong as they were at age 49.

Makes a lot of sense, and probably should give some food for thought for the younger potential early retirees.

Regards, Jarhead
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 01:39 AM   #11
 
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
I fear that the study is woefully incorrect in its assumption that todays 55 year olds have the same spending habits as today's 80 year olds did when they were 55.
Yes, you guys have a valid criticism of the study. But I'll bet that the assumption is probably correct, even if they have no support for it. For example, I'm guessing that 70-somethings travel less than 50-somethings because they have less energy and/or they've already done a lot of traveling, and are tired of it. Those two things are independent of culture.

Say "Trip to France!" to a young person, and they think of a promenade near the Eiffel tower. Say it to an older person, and they think of airline delays, hassles with car rentals, hotel surcharges, and not being able to find a bathroom.

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 06:44 AM   #12
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Re: Scott Burns -- You're Saving Too Much to Retire

Peter and RK, the article did talk about following one particular generation, and the reduction of spending seems to hold true.

It looks like there may be some issues with nursing home costs though.

I found several sources of information which says average length of stay in a nursing home is about two and a half years. This might be for current residents only, which haven't died or been discharged. Discharged residents on average apparently stay about a year. http://www.elderweb.com/?PageID=2770
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 07:49 AM   #13
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by TromboneAl


Yes, you guys have a valid criticism of the study.* But I'll bet that the assumption is probably correct, even if they have no support for it.* For example, I'm guessing that 70-somethings travel less than 50-somethings* because they have less energy and/or they've already done a lot of traveling, and are tired of it.* Those two things are independent of culture.

Say "Trip to France!" to a young person, and they think of a promenade near the Eiffel tower.* Say it to an older person, and they think of airline delays, hassles with car rentals, hotel surcharges, and not being able to find a bathroom.

Well, that pretty much sums it up for me. I wouldn't go to France if you paid.
I'm not kidding.

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 08:35 AM   #14
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by TromboneAl
Yes, you guys have a valid criticism of the study. But I'll bet that the assumption is probably correct, even if they have no support for it. For example, I'm guessing that 70-somethings travel less than 50-somethings because they have less energy and/or they've already done a lot of traveling, and are tired of it. Those two things are independent of culture.
Think there is some truth here. I've watched the spending habits of three older siblings who retired in their early 60's. Now that they are in their early to mid-70's, they have definitely slowed down their travel and other discretionary spending. They just don't have the energy or desire to stray too far from home or put up with the hassle factor. When I mention taking a trip somwhere, I usually get a "been there, done that" response. No major health issues, just a different phase of life/retirement.

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 08:36 AM   #15
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Re: Scott Burns -- You're Saving Too Much to Retire

While true that spending on luxury class items like the aforementioned Lexus and overseas vacations probably decline, there's a baseline level that everyone needs to spend just to maintain a life, and this is increasing as time goes on. Could it possibly be that spending goes down as you age because your income and savings also go down, since you can't spend what you don't have? *And your baseline spending level must necessarily decline as lower quality substitutions are made in the interest of conserving capital? *

Are the spending levels quoted per person or per couple. *Many couples become widowed as you get past 70, thereby lowering spending levels.
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 08:49 AM   #16
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by REWahoo!
Think there is some truth here.* I've watched the spending habits of three older siblings who retired in their early 60's.* Now that they are in their early to mid-70's, they have definitely slowed down their travel and other discretionary spending.* They just don't have the energy or desire to stray too far from home or put up with the hassle factor.* When I mention taking a trip somwhere, I usually get a "been there, done that" response.* No major health issues, just a different phase of life/retirement.

REW
I have no retired siblings and could only think of two (2) close friends (couples) who
have been retired long enough to give me a clue. Both men are retired doctors.
I can't see any obvious changes. One couple lived modestly and the other
lived luxuriously. Last I knew this was continuing. Not very scientific but it's
all I have. Now that I think of it, the only person I know with a huge
reduction in living expenses is me. You've heard that story!

JG
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 08:50 AM   #17
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by TromboneAl

Yes, you guys have a valid criticism of the study. But I'll bet that the assumption is probably correct, even if they have no support for it. For example, I'm guessing that 70-somethings travel less than 50-somethings because they have less energy and/or they've already done a lot of traveling, and are tired of it. Those two things are independent of culture.

Say "Trip to France!" to a young person, and they think of a promenade near the Eiffel tower. Say it to an older person, and they think of airline delays, hassles with car rentals, hotel surcharges, and not being able to find a bathroom.
I certainly agree on the travel issue. However, we're not members of this forum because we only look at big items and forget how the 'little things' all add up!

Take a few moments and think about everything the 40-55 year old segment is starting to buy/use/lust after (ok JG and (), you can keep the comments to yourself :P ) - everything from plasma screen tvs to new digital organizers every year to new cell phones...the massive consumer market that is calling the name of most 40-55 year olds just isn't anything like what it was when the current retirees were younger.

So, while they might be giving the finger to the thought of international travel as they button up their Depends in the morning, don't forget that there are plenty of other ways the Boomers will want to be spending their money that has nothing to do with travel when they're 75-80. Sure, a 75 year old may not be interested in the latest palm pilot, but odds are that 20 years from now most nursing homes will have ethernet/wireless connections in every room - and that's just the tip of the expenditure iceberg.

"You can have only so many palm pilots and computers, so they won't be spending that much" you say? Well, you could say that about today's time - yet look at the average consumer debt levels in the country, which are indications of rampant consumer spending spiraling out of control.

Of course, many people on this forum will say "But I don't need to have this and that latest gadget" - and I fully realize that. The above comments are mainly directed towards the 'average Jane and Joe' that fritter away their money for today instead of thinking of tomorrow. I would agree that the original article could apply quite well to the average member of this forum, but I question the accuracy to apply it to the nation at large (just yet).

--Peter
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 09:04 AM   #18
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Re: Scott Burns -- You're Saving Too Much to Retire

Just wanted to make one more point, re: spending at age 49 retired, and 19 years later.

We have not downsized our home, to allow more potential cash flow.

Our home is in the Sierra Foothills, on the rim of a canyon, and it is 3400 sq. feet. *3 car garage, over 2,000 feet of decking, enclosed by wraught iron fencing, etc. etc.

We just spent $12,000.00 to replace all the flooring.

Point being, we have made no effort to change our set *bills since retiring, and are still spending about the same as we were 19 years ago. *(If we were willing to downsize, it would be less then it was).

It has been apparant to me for some time, that there has been a shift in what we used to spend money on, and what we do at this stage.

We're all different, and that's what makes a horse race, but for us that article is pretty much valid.

Jarhead
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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 09:09 AM   #19
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by nearly50
Could it possibly be that spending goes down as you age because your income and savings also go down, since you can't spend what you don't have? And your baseline spending level must necessarily decline as lower quality substitutions are made in the interest of conserving capital?
I think the paper addressed this and asserts the reduction in savings is not due to necessity but is voluntary and that net worth actually increases over time.

In the case of two of my three older siblings, this has been the case (decreased spending, increase in net worth). My third sibling's net worth declined in her late 60's due to the death of her spouse and the contesting of his will by his children from a previous marriage. Attorney's fees were eating up a major portion of whatever my sister might receive, so after months of legal wrangling she agreed to settle for half the estate.

BTW, in what could be described as gruesome but poetic justice, one of the two stepsons bought a new car the same day he got his money from the estate. High on booze and drugs, he wrapped it around a tree that afternoon and now his widow is both finanically and personally much the better for it.

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Re: Scott Burns -- You're Saving Too Much to Retire
Old 07-17-2005, 09:44 AM   #20
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Re: Scott Burns -- You're Saving Too Much to Retire

Quote:
Originally Posted by Peter76
My thoughts exactly R_K!

ALSO....an interesting point: you frequently hear the ads about the ravages of long-term care. How does the cost of nursing homes/etc. play into the averages quoted? $21,402/year/person for a 75+ year old sure doesn't sound like they are spending much time in a nursing home or have specialized care they are paying for out of their own pocket...and don't tell me that they're paying $15,000/year in premiums on a LTC policy.

So, either the $21,402 figure is a little low...or perhaps the fear of LTC costs is overblown to make the sales pitches of the LTC companies more attractive?

Does anyone know of a lie statistic listing the total number of elderly (i.e. over 65) people who are currently in a nursing home/assisted living facility, and the average length of time each person has been there?

I got this from the Bernicke article:

http://www.fpanet.org/journal/articl...p0605-art7.cfm

While the U.S. Bureau of Labor's Consumer Expenditure Survey can be a useful resource for obtaining a basic understanding of spending patterns, these statistics do have limitations. One limitation of this data includes the potential absence of long-term care costs. For example, a person in a nursing home is unlikely to participate in a survey from the Bureau of Labor Statistics. This would give the health-care-expenditures category artificially low average expenses.


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