youbet,
FWIW I'm right at that magic 56 of Bernacke fame. I've already seen my spending go down in many areas. I'm factoring these into my base living expense budget. This includes amortizing for predictable but not annual expenses like autos and repairs. I'm not going to discount this spending in my plan but increase it with inflation. I'll also maintain a $300,000 reserve for LTC which will also increase with inflation.
The extras like travel will be covered in a Bernacke type budget where it will start quite high but will drop in real spending terms by 3% every year. When I'm in my mid-70's I'll still have 50% of this spending available so my goal isn't to live a meager lifestyle. My intent is to front load my spending so I can do the more exotic trips now and in the early part of my retirement. If in my 80's I can't go as often or to as exotic locations, I'm willing to take that risk. I also think my desire to travel as much will diminish so I won't mind the reduction in assets available to do it with.
It sounds like you're not following the Bernicke plan then 2B...... By increasing your travel budget for the early years, you're overcoming his formula which has RE types cutting back at a fairly aggressive pace starting at 56. You're actually increasing, the opposite of what he says. And following that you're cutting back less aggressively by only reducing the "extras" budget and not the total budget.
I also note that someone's age is key in how that person views Bernicke. For a pre-RE "youngster" the concept of cutting back spending beginning in your late 50's might sound good because it means needing to accumulate less before RE. But, when you're already RE'd and in your late 50's, it's hard to stomach Bernicke when you're active, having fun and not wanting to begin cutting back. In fact in our case, we're making decisions to spend more so we can hire some services to enable continued semi-wilderness travel. We're able to do this not because I was smart enough to specifically plan for it, but just through some unplanned favorable circumstances. I'm certainly glad we did not actually plan to
decrease spending during this time!
Nords said....
I can understand elderly reducing their spending out of fear, ignorance, and dementia. ("Now what was I going to do with this money?!?") I can't see them reducing spending due to a more sedentary lifestyle.
Great insight Nords! This concept helps me understand the outcome of Bernicke's research a little better. When he presents data that shows 56+ yo retirees spending falling and portfolios growing, it flunks my common sense test. Yet, he's quoting govt statistics, must be true (?). But perhaps folks have the money and are just afraid to spend it, or the kids are helping them be afraid to spend it, or? Again, I'm referring to folks in their 60's and early 70's more than the 80+ crowd.
Well, this has been an interesting discussion. I'm walking away with:
1. Many folks seem to misunderstand Bernicke and the Bernicke option in FireCalc. They think it means that when you're very elderly, say in your mid 80's and up, you'll spend less. Actually, it means beginning rather aggressive spending cuts in your late 50's. Look at the outputted projected spending graphs!
2. If you are going to use Bernicke-like spending reductions in your planning, think carefully about your beginning budget and perhaps a less agressive reduction schedule, as 2B as done.
3. The closer in age you get to Bernicke's magic "56," the less sense it seems to make.
youbet (who is over 56 and unwilling to cut back yet!)
